Determinants of Price Elasticity of Demand

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Determinants of Price Elasticity of

Demand
1. Nature of the Commodity:
If goods are very essential then such goods’ demand is
inelastic. If they are not very necessary for human life then
demand for goods is elastic.
2. Income of the Consumer:
If people spend small amount form the income upon a
commodity then demand of such commodity is inelastic but
if they spend huge part of their income for the commodity
then its demand is elastic.
3. Substitute:
If there is available of close substitute goods then in this
case demand is elastic but if there is no close substitute of
commodity then demand is elastic.
4. Habit:
If goods are related to the taste and preference then
demand of such goods is inelastic and vice-versa.
5. Several use of commodity:
If goods are of multipurpose then its demand is elastic but if
it is use for single purpose its demand is inelastic.
6. Postponement:
If consumers can post pond the need of goods then its
demand is elastic but if they can’t be post-pond then its
demand is inelastic.
7. Price level:
If the commodities are of low price range and high price,
demand for these goods is inelastic but if they are of middle
price range then its demand is elastic.
8. Time Period:
If time period is shorter, there is no chance to change
choice then demand for those goods is inelastic but is time
period is long then demand is elastic.
9. Joint Demand: There are certain commodities which are
jointly demanded such as pen and ink, car and petrol etc.
The elasticity of demand of the second commodity depends
upon the elasticity of demand of the major commodity. For
example: if the demand for car is less elastic, the demand for
petrol will also be less elastic.

Price elasticity of demand

Point method: This method was developed by Alfred


Marshall for measuring price elasticity of demand at a
particular point of demand curve. This method is used when
very small change in price of the commodity results in very
small change in its quantity demanded.

Geometrically, we can derive the following formula to


measure the price elasticity of demand on a straight line
(Linear) demand curve.
Lower segment of the demand curve
Ep = Upper segment of the demand curve

Figure,
Thus, using the formula of point elasticity we can
calculate the price elasticity of demand at the
different point of the demand curve.

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