Factors Determining Elasticity of Demand

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Factors Determining Elasticity of Demand There are several factors which determine the elasticity of demand. (i)For necessaries and conventional necessaries the demand is inelastic or less elastic- We have to buy these commodities whatever be the price.

Factors Determining Elasticity of Demand

There are several factors which determine the elasticity of demand.

(i) For necessaries and conventional necessaries the demand is inelastic or less elastic- We have to buy these commodities whatever be the price. A change in price, therefore, does not matter so far as the demand for such commodities is concerned. Salt is one such thing and wheat another. But in a poor country like India-even the demand for such things is somewhat elastic. The change in the price of wheat may be immaterial for upper and middle classes, but its consumption will certainly increase among the poor when its price falls.

(ii) Demand for luxuries is elastic- When the price of luxuries falls; people buy much more of them, and when the price raises the demand contracts. But luxury is a relative term. A high-priced luxury of the poor man is a low-priced necessary for the rich. For the same thing demand of the lower classes may be elastic and that of the rich classes less elastic.

(iii) For substitutes the demand is also elastic- For example, when price of tea rises, we may buy less of tea but more of coffee, and vice versa. We must, however, remember that very few things can serve as suitable substitutes.

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