Economics 12 Notes for Economics Notes

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Factors determining the elasticity of Demand

1. Degree of necessity: 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. Proportion of customers income spending on the commodity: 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. Existence of substitute good: 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. Range of Price: 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. Income level: The commodity which is purchased by low and high level income earner then demand is inelastic but in the case of middle income earner demand is elastic.

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