Question

What is meant by increase in demand? Discuss any four factors affecting elasticity of demand.

Answer 1

Increase in demand - Increase in demand refers to a situation when the consumers buy a larger amount of a commodity at the same existing price.

Factors affecting price elasticity of demand:

• (i) Availability of substitutes - A commodity with more and close substitutes tends to have an elastic demand and one with a few weak substitutes has an inelastic demand.
  
• (ii) A proportion of income spent - Smaller is the proportion of income spent on a commodity, the smaller will be the elasticity of demand and vice-versa.
  
• (iii) Habits of the consumer - Price elasticity of demand depends also upon whether or not the consumers are habitual of using a commodity. If consumers are habitual of consuming some commodities, they will continue to consume these even at higher prices. The demand for such commodities will be usually inelastic.
  
• (iv) Time factor - Price elasticity is generally low for the short period as compared to long period.