Factors Affecting Price Elasticity Of Demand Essay

Factors Affecting Price Elasticity Of Demand Essay-26
Thus the elasticity of demand for such commodities is elastic. Availability of substitutes: The demand for a commodity having perfect substitute is relatively more elastic. People use those commodities for certain urgent use in response to a rise in price.If a flood gives the same pleasure and satisfaction in place of the consumption of another commodity, it is called a substitute commodity. Close substitute has got more elastic demand and remote substitute has less elastic demand. For example electricity can be used for a number of purposes like heating, lighting, cooking, cooling etc. Possibility of postponing consumption: The demand for those goods whose consumption can be postponed for sometime is said to be elastic. Nature of goods: Elasticity of demand depends on the nature of goods.

Thus the elasticity of demand for such commodities is elastic. Availability of substitutes: The demand for a commodity having perfect substitute is relatively more elastic. People use those commodities for certain urgent use in response to a rise in price.If a flood gives the same pleasure and satisfaction in place of the consumption of another commodity, it is called a substitute commodity. Close substitute has got more elastic demand and remote substitute has less elastic demand. For example electricity can be used for a number of purposes like heating, lighting, cooking, cooling etc. Possibility of postponing consumption: The demand for those goods whose consumption can be postponed for sometime is said to be elastic. Nature of goods: Elasticity of demand depends on the nature of goods.

These three will be explained individually in order in the following paragraphs.

Price elasticity of demand is a measure of the responsiveness of change in quantity demanded of a good/service to a change in price, ceteris paribus.

Goods may be necessary for human life, comfort or luxurious.

Necessary goods are extremely essential so the demand for these goods-is inelastic.

The consumer has to satisfy his habit regardless of change in price.

Thus the demand for habitual commodities is fairly inelastic. Durability of Commodities: The demand for durable commodities is elastic whereas the demand for less durable commodity is inelastic.

One of the factors that affect the PED is the substitutes and complementary product that a good/service has.

And cross-price elasticity of demand measures the responsiveness of demand for good X following a change in the price of a related good Y.

If the PED is smaller than one, the product will be price inelastic (price insensitive), where a percentage change in price will lead to a smaller percentage change in quantity demanded.

And when PED=1, the product is unit elastic, where an X% change in price will result in an X% change in quantity demanded.

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