34

DEMAND
ELASTICITY OF
O demandare as follows:
DETERMINANTS OF elasticity of
price important determinant
magnitude of an
as
The main factors which affect the Consumners'income acts elasticity of demand will
the
() Income of the Consumers: high-income groups, quantity demanded by greater
of the elasticity of demand. For willnot affectthe be nmore elastic. The rise
price issaid to
be less. It is because change in the demand quantity demanded. In this case
groups,
proportion. But, for low-income influence onthe and vice-versa.
have a Significant proportion
and fall in the price greater
increases in the
when the pricefalls the
demand
the goods that replace consumption
Substitutes: The substitutesare to have an elastic demand,
(i) Availability of substitutes are said
which haveclose Commodities such
ofother goods. The goods
an inelastic demand.
willhave
substitutes and hence, the price
if
while goods with no close substitute close
coffee) are for pepsi.
as, Pepsi and Coca cola (or tea and cola and reduce the demand
to the coca
of pepsi increases, people will switch substitutes, price elasticity
like salt or sugar which do not have close
Whereas, goods elasticity of demand.
positive cross
will be much less. Substitutes have a
Spent: The elasticity of demand for a product is determined by
(m) Amount of Money
individual consumer on that product. In case of
the proportion of income spent by the
fraction of consumers' ncome is
certain goods, such as, match box, salt, etc. a small
these products will not be
to be spent, and thus, even if their prices rise the demand for
affected much.

Whereas cars, AC and even clothing are the items where an individual spends a major
proportion of the total expenditure and therefore, if there is any change in the price of
these items, the demand will get affected. The demand for such products is said to be
relatively elastic.
(iv) Nature of the Commodity (Luxuries versus
necessities): The price elasticity of
demand also depends on the nature of the commodity. The
Jow for necessities and comforts and high for elasticity is likely to be
The demand for the necessities of life, luxXuries (cars, ACs and jewellery, etc.).
such as foodgrains, clothing and
is inelastic as their
demand cannot be postponed. The textbooks, etc.
such as fan is neither elastic nor demand for the comfort goods
inelastic. Here, demand
moderately with the rise and fall in their prices. decreases or increases only
For example, when the price of salt varies
quantity; since we cannot postpone its widely, continue to buy almost
we
sets falls many people who could not demand (inelastic). the
But when the price ofsame
for TV sets willbe elastic.
afford earlier may now buy it. TV
Thus, the demand