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What is meant by price elasticity of demand ? Explain any 2 factors that affect it. |
| Answer» Solution :Price Elasticity of Demand is defined as the responsiveness of quantity demanded to a change in price.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. | |