Question

Explain any two factors that affect the price elasticity of demand. Give suitable examples.

Answer 1

The price elasticity of demand is affected by the following factors

(i) Nature of Commodity: Goods may be necessities, luxuries or comfort goods. Demand for necessities (like salt, vegetables) is highly inelastic; demand for luxuries (like ACs) is highly elastic; and demand for comfort good (like TV, air coolers) is moderately elastic.

(ii) Availability of Substitutes: Commodities which have substitutes have elastic demand, like tea and coffee. Commodities having no substitutes like liquor and cigarettes have inelastic demand.