FACTORS AFFECTINGELASTICITY OF DEMAND By, ALPHY VARGHESE
AVAILABILITY OF SUBSTITUTES• One of the most determinants of elasticity of demand for a commodity is the availability of its close substitute.• Higher the degree of closeness of substitutes the greater the elasticity of demand in a commodity.• Eg. Tea and Coffee
NATURE OF COMMODITY• Commodities can be grouped as luxuries, comforts and necessities.• Demand of luxury good is more elastic than the demand of necessities and comforts.
WEITAGE IN TOTAL CONSUMPTION• Another factor that influences the elasticity of demand is the proportion of income which consumer spend on a particular commodity.• If he spend more income on a commodity, its demand will be more elastic.• Eg. Salt, Pen etc.
TIME FACTOR IN ADJUSTMENT OF CONSUMPTION FACTORS• Elasticity of demand depends also on the time consumers need to adjust their consumption pattern to a new price; the longer the time available, the greater the price elasticity.
• If the price of TV is decreases, demand will not increase immediately unless people posses excess purchasing power. But over a time, people may be able to adjust their expenditure pattern. So that they can buy a TV set at a lower price.
RANGE OF COMMODITY USE• The range of use of commodity also influence the elasticity of demand. The wider the range of the use of a product, the higher the elasticity of demand for the decrease in price.• Eg. Milk
CHANGE IN FASHION• Fashion are subject to changes. If a particular commodity goes out of fashion, demand may decrease even if the price is lowered. On the other hand, if some other commodities turns to be a fashionable product, its demand will increase even if the price is raised a little.