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| 1. |
Mention any three factors that affect the price elasticity of demand for a commodity. |
| Answer» Solution :FACTORS AFFECTING ELASTICITY OF DEMAND1. Nature of the Good:The elasticity of demand for a good depends upon the nature of the good, i.e., whether the good is a necessary or a luxury good. The elasticity of demand for a necessary good is relatively small. For example, if the price of such a good rises, its buyers generally are not able to reduce its demand.2. Availability of Substitute Goods:If close substitutes for a particular good are available in the market, then the demand for the good would be relatively more elastic. 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.3. Proportion of Income Spent on the Good:The price-elasticity of demand for a good also depends on the proportion of their income the buyers spend on the good. If the buyers spend a small proportion of their income, then they would not considerably decrease their purchase of the good as its price INCREASES. | |