Factors influencing elasticity of demand. Elasticity of Demand 2022-12-27
Factors influencing elasticity of demand
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Elasticity of demand refers to the degree to which the quantity of a good or service that consumers are willing and able to purchase changes in response to a change in price. In other words, it is a measure of the sensitivity of demand to price. Elasticity of demand can be affected by a variety of factors, including the availability of substitutes, the proportion of income spent on the good or service, the necessity of the good or service, and the time frame being considered.
One important factor that influences elasticity of demand is the availability of substitutes. If a good or service has many substitutes, then consumers will be more likely to switch to one of these substitutes if the price of the original good or service increases. This is because consumers have more options to choose from, and they can find a similar product at a lower price if the price of the original good or service becomes too high. On the other hand, if a good or service has few or no substitutes, then consumers will be less likely to switch to a different product, even if the price increases. In this case, the demand for the good or service will be more inelastic, as the quantity demanded will not change as much in response to a change in price.
The proportion of income spent on a good or service is another factor that can affect elasticity of demand. If a good or service represents a small portion of a consumer's budget, then they may be more willing to continue purchasing it, even if the price increases. However, if the good or service represents a significant portion of a consumer's budget, then they may be more sensitive to price changes and may be more likely to reduce their consumption if the price increases.
The necessity of a good or service can also affect elasticity of demand. Necessities, such as food and clothing, tend to have more inelastic demand because consumers will continue to purchase them regardless of the price. On the other hand, luxury goods, such as designer clothing and expensive vacations, tend to have more elastic demand because consumers are less likely to purchase them if the price increases.
Finally, the time frame being considered can affect elasticity of demand. In the short term, consumers may be more resistant to price changes and may not change their consumption patterns in response to a price change. However, in the long term, consumers may be more willing to adjust their consumption patterns in response to a change in price.
In summary, elasticity of demand is influenced by a variety of factors, including the availability of substitutes, the proportion of income spent on the good or service, the necessity of the good or service, and the time frame being considered. Understanding these factors can help businesses and policymakers make informed decisions about pricing and demand for goods and services.
Factors Influencing the Elasticity of Demand
B Turkey and chicken have many substitutes, such as fish or beef, while meat in general has fewer substitutes. If a consumer is habituated or addicted to the use of a commodity say tobacco and alcohol, its demand will be inelastic. Hence demand for rice and medicines will be inelastic and the demand for the fruits will be elastic, that is, more will be purchased when the prices come down. As a result, businesses that provide such products are able to maintain greater price flexibility because demand remains constant even after prices rise or fall. To explain graphically, When the AR and MR curves fall downward in a straight line, the MR curve lies half-way between the AR curve and the Y-axis. Price elasticity of demand will help Toyota to decide the amount an Raise Minimum Wage 331 Words 2 Pages If businesses are earning more, they will need to hire more employees to keep up with the increased sales from the minimum wage consumers who have increased the spending because they have higher earnings. Thus, a rise in price does not have a great effect on quantity demanded — demand is inelastic.
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Exploring The Elasticity Of Ketchup: An Analysis Of Economic Factors And Implications For Producers And Consumers
For instance, tea and coffee are substitutes. For example, most people own a car and need it to get to-and-from work each day. Again, on the other hand, when the price of a commodity is already low e. The middle income group is sensitive to the change in price. Generally, commodities and drugs which are stimulants will have inelastic demand. In case utility falls rapidly, it means that the consumer has no other near substitutes. Thus, the demand for a car or a TV set is in general elastic to the people of ordinary means; but, it may become inelastic to the rich people.
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What is ‘Elasticity of Demand’? Explain the Factors Determining Elasticity of Demand.
Nature of Expenditure: The elasticity of demand for a commodity also depends as to how much part of the income is spent on that particular commodity. An example of this can be an FMCG product like a packet of chips. The Availability of Substitutes: Commodities which have good substitutes have an elastic demand. Luxury articles have an elastic demand. Again, conversely, if the price of coffee decreases, then people might reduce their consumption of tea and they might considerably increase their use of coffee. As a result, when it comes to income proportion, milk is a relatively inelastic material. If the demand cannot be postponed, it will have inelastic demand.
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Factors that affecting elasticity of demand
It happens because consumers find it difficult to change their habits, in the short period, in order to respond to a change in the price of the given commodity. Necessities and luxuries 8. For example, rich buy Banaras silk and diamonds etc. Costly goods like laptop, Plasma TV, etc. Availability of Substitutes: Influences the elasticity of demand to a larger extent. For instance a fall in price of coal may make everyone including the householders to demand coal and the demand will be elastic.
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What are the factors influencing the elasticity of demand?
The reason stated for this is the redundant human nature to change habits. For example, milk, vegetables etc. Apart from this, goods are also grouped into durable and perishable goods. If the standard of living is already very high, the demand will be equally inelastic. Demand is inelastic for those goods the use of which is urgent and, therefore, cannot be postponed. The net result of demand being either elastic or inelastic will depend on the interplay of all these influences stated above.
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Factors Affecting the Price Elasticity of Demand
If airline cargo charges increase, however, a manufacturer may ship by rail, by truck, by water, or other means of transportation. Many factors determine the demand elasticity for a product, including price levels, the type of product or service, income levels, and the availability of any potential substitutes. The possible reason behind this is that even a small rise in the price of such goods will induce its buyer to look for its substitutes. Here too, the statement that a commodity having several uses will have elastic demand has to be understood with a restrictive sense. Which factors affect demand and supply the most? Which curve is more elastic? Similarly, the demand for low-priced goods, such as cheap potatoes and match boxes, is also inelastic.
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9 Factors Influencing the Elasticity of Demand
For example medicines for any sickness should be purchased and consumed immediately. It happens because rich people are not influenced much by changes in the price of goods. Therefore, consumers continue to purchase the same quantity of these goods even in case of increase in their prices. Definition of the commodity 3. That is, elasticity of demand for a good depends upon the proportion of income spent on the good.
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What Factors Influence a Change in Demand Elasticity?
On the other hand, if the price of a luxury good diminishes, the demand for the good would considerably increase, since, along with new demand, all deferred demands would now be satisfied. If the purchasing power of the consumers decline, manufacturing industries will experience low returns. Therefore, the Kaufman and Hotchkiss 2006:232 state that in labour …show more content… 1998:360 , the more rapidly the marginal product diminishes, the less elastic is the demand for labour, other things remaining the same. For example, if an individual goes to a movie at a particular venue three times each week and the price of admission is doubled, then he may cut down on the number of times he goes there. The given time period can be as shorts as a day and as long as several years. People are price sensitive, and as a result, they will typically choose the least expensive option. In other words, increasing the wages for minimum wage positions will create more minimum wage Coca Cola Demand Curve 1041 Words 5 Pages DEMAND CURVE Demand is defined as the different quantities people are willing to buy at different prices.
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Elasticity of Demand and Supply
Necessities are goods needed for basic living such as food and housing. Given this, small price changes, when applied to the most responsive food items, can have a significant impact on populations. For example, since tea, a close substitute for coffee, is available in the market, a rise in the price of coffee would result in a considerable fall in its demand and a consequent rise in the demand for tea. One such concept is elasticity. If the price rises by 5%, demand falls by 2%, for example.
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