Determinants/Factors affecting price elasticity of demand
- Level of consumers’ income. The higher the level of consumers’ income, the lower the elasticity of demand (inelastic) and the lower the level of income, the higher the elasticity of demand (elastic).
- Degree of necessity of the commodity. The higher the degree of necessity of the commodity likes salt, the lower the elasticity of demand (inelastic) while the lower the degree of necessity of the commodity the higher the elasticity of demand (elastic).
- Degree of availability of substitutes. The demand for a commodity with many substitutes tends to be elastic while the demand for a commodity with few or no substitutes tends to be inelastic.
- The cost of the commodity. The demand for the commodity that takes a small proportion of the consumers’ income tends to be inelastic. For example elasticity of demand for a match box. On the other hand, the demand for a commodity that takes a large proportion of consumers’ income tends to be elastic.
- Habit (addiction) in the consumption of the commodity. The demand for the commodity for which the consumer is addicted to tends to be inelastic for example a consumer who is addicted to the consumption of cigarettes. On the other hand, the demand for the commodity for which the consumer is not addicted to tends to be elastic
- Number of uses of the commodity. The demand for the commodity that has many uses “tends to be elastic. For example, if the unit price of electricity increases, consumers use less of it for only vital purposes for lighting: On the other hand, the demand for the commodity that has few uses tends to be inelastic.
- Degree of durability of the commodity. The demand for a durable commodity tends to be inelastic. This is because even if the price of such a commodity falls, the consumer may not demand more of that commodity because he already has that commodity. On the other hand, the demand for a perishable commodity tends to be elastic.
- Level of advertisement for the commodity. The demand for a commodity that is highly advertised tends to be inelastic but the demand for the commodity that is not highly advertised tends to be elastic.
- Future price expectations. The demand for the commodity whose price is expected to decrease in future makes its current demand to be elastic but the demand for the commodity whose price is expected to increase in future makes its current demand to be inelastic.
- The demand for a commodity whose use can be postponed. The demand for the commodity whose use can be postponed to a future date tends to be elastic but the demand for the commodity whose use cannot be postponed tends to be inelastic.
- Time period. In the short run, the demand for the commodity may be elastic because the consumers are not yet used to the new product on the market while in the long run the demand for such a commodity may be inelastic after the consumers getting used to the product.
- Level of consumers’ ignorance. Consumers may buy commodities at a high price when they do not know where such commodities or their substitutes are sold. Consumers may also mistake the increase in the price to be a result of increase in the quality of products which may not be the case. Consumers’ ignorance therefore leads to low elasticity of demand of commodities.
- Degree of convenience in obtaining the commodity. The higher the level of convenience, the lower the elasticity of demand and the lower the level of convenience, the higher the elasticity of demand.
CATEGORIES Economics
TAGS Dr. Bbosa Science
