Explain the factors affecting price elasticity of demand of a commodity? [Most Important] Ans.1. Nature of a commodity:
The demand for essential goods like water is inelastic because the consumer will not change their demand at any price.
On the other hand, the demand for luxury goods (like LED, AC, and Car) is more elastic because the demand for these goods can be changed as they seem very costly.
2. Availability of close substitutes:
A commodity will have more elastic demand if there are so many substitutes are available (like Cold-Drink i.e. Pepsi, Thumps-up, and RC-Cola etc).
On the other hand, a commodity will have fewer substitutes then its demand will be less elastic (like water, salt, etc.).
3. The number of uses of a commodity:
If a commodity has only a few uses then its demand will be less elastic (like Butter etc.).
On the other hand, a commodity has many uses then its demand will be more elastic (like Milk, Electricity, etc.).
4. Habit: -
If a person is habitual to some goods than the demand for such goods will be inelastic.
For example: (1.) The demand for cigarettes for chain smokers. (2) Demand of Alcohol for a drunker.
5. Share in total expenditure: -
The demand for such goods where a small part of income is spent is less elastic (like Needle, Matchbox, Button, etc.)
On the other hand, the demand for such goods where a significant part of income is spent is more elastic (like Luxury goods).
6. Level of income: -
At a higher level of income demand is less elastic and of a lower level of income demand is more elastic.
7. Postponement of use: -
The demand for such goods whose demand can be postponed for some time is generally more elastic (like LED etc.) and vice-versa.
On the other hand, the demand for such whose demand cannot be postponed due to change in price is less elastic (like Wheat, Rice, etc.).
8. Time Period.
9. Price of own good etc.
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