Tuesday, October 19, 2010

Affecting elasticity of demand

(1)    Necessaries and conventional necessaries: Elasticity of demand tends to be low for necessary goods such as food and shelter.
(2)    Demand for luxuries: The demand for luxuries is elastic for lower earnings people. If price low they will tends to buy more. But for the rich people these things are conventional necessaries price is not matter for them.    
(3)    Proportion of that expenditure: If consumption goods absorb only a small proportion of total expenditure, it will be in elastic and vice-versa; e.g. - salt the demand will not be much affective by a change in price.
(4)    Substitutes: When the price of tea rises, we may curtail its purchase and take to coffee, and vice – versa. But it is true that, we cannot satisfy until we get our favorite brand.
(5)    Goods having several uses are elastic: Coal is such commodity when cheep, it will be uses for several purpose. Such as cooking, heating, industries and its demand increase. When price goes up it will be use only urgent uses.
(6)    Joint Demand: Demand for Jointly demanded goods is less elastic.
(7)    Level of price: If price decrease the demand will be increase and vice-versa.
(8)    Level of income: Demand on the part of the poor is more elastic than on the part of the rich.
(9)    Market imperfections: Owning to ignorance about market trends the demand for goods may not increase when its price falls.
(10)    Technological factor: Low prices elasticity may be due to technological reasons.
(11)    Time period: The elasticity of demand is greater in the long run than in the short run.

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