Factors affecting price elasticity of demand essay

Its first effect will be that the prices of our imports will rise and we will be induced to reduce our imports. Commodities are generally grouped into necessities, comforts and luxuries. We may now discuss the application of the concept of elasticity of demand in the formulation of government policies in various fields.

Elasticity of demand also depends on the proportion of income spent on different goods. However, demand is more elastic in long rim as it is comparatively easier to shift to other substitutes, if the price of the given commodity rises. Firms producing them can be regarded as one industry.

Tea and coffee are substitute commodities. Since price and demand vary in the opposite direction, the cross elasticity of demand is negative. For example, coal is used for cooking and heating, for power generation, in factories, in locomotives, etc.

The gains from trade depend, among others, on the elasticity of demand. In the market with elastic demand for his commodity, the discriminating monopolist fixes a low price and in the market with less elastic demand, he charges a high price.

Time factor plays an important role in influencing the elasticity of demand for commodities. Elasticity of demand further helps in fixing prices for the services rendered by public utilities. Let us suppose that when the price of tea is Rs 8 per kg, kg.

There are certain commodities which are jointly demanded, such as car and petrol, pen and ink, bread and jam, etc.

9 factors that determines the elasticity of demand

In the first case, we will be in a position to charge a high price for our products and in the latter case we will be paying less for the goods obtained from the other country.

The elasticity of demand of the second commodity depends upon the elasticity of demand of the major commodity. The concept of elasticity of demand is of paramount importance to the finance minister.

Essay on the Price Elasticity of Demand

Total expenditure falls as price falls in the inelastic range, i. Quando eu dizer ou dissertation poorly written narrative essays on travelling scope and limitations dissertation, in analytical essays colloquialisms. The latter know that convenient substitutes of electricity are not available.

We have studied the measurement of elasticity at a point on a demand curve. Similarly, if the price of milk decreases, consumers may increase its consumption by using it for various purposes, such as making curd, butter, cream, and ghee.

Persons who belong to the higher income group, their demand for commodities is less elastic. The demand for multi-use goods is more elastic as compared to single-use goods.

Under monopoly discrimination, the problem of pricing the same commodity in two different markets also depends on the elasticity of demand in each market. The basis of Promotional Elasticity: This distinction helps to define an industry. Frequency of Increase in Income: This is illustrated in Figure The cookie will expire after six months, or sooner should there be a material change to this important information.

Factors affecting price elasticity of demand essay writing

Total Outlay Method can also be explained with the help of Figure The Total Outlay Method: When prices of such goods change, consumers continue to purchase almost the same quantity of these goods. But when elasticity is measured between two points on the same demand curve, it is known as arc elasticity.

The value of investments and the income from them may go down as well as up and are not guaranteed. This is due to the fact that consumers have already purchased these goods in sample quantities; therefore, change in the price of these goods causes a little change in their demand.

If you are unsure about the meaning of any information provided please consult your financial or other professional adviser. Generally, cross elasticity for substitutes is positive, but in exceptional circumstances it may also be negative.

It is immaterial to a rich man whether the price of a commodity has fallen or risen, and hence his demand for the commodity will be unaffected.

In the words of J. In this situation, no consumer would buy the product at all.Meanwhile, elasticity of demand has been theoretically defined as the responsiveness of the actual quantity demanded of a product to the change in its actual price.

E.K. Estham argued further that elasticity of demand could be defined as the measure of the degree of responsiveness of the quantity demanded to any small change in its price. Factors that affect the price elasticity of supply is quite a rare and popular topic for writing an essay, but it certainly is in our database.

9 Major Factors which Affects the Elasticity of Demand of a Commodity | Economics

I’m looking for. product, known as price elasticity'. Assuming a perfectly competitive market we can better determine the major factors affecting the price elasticity f demand and supply.

From the. State the factors affecting the price elasticity of demand? The type of product will affect the price elasticity of demand i.e.

a necessity such as petrol will have a inelastic demand as it is a must have for consumers so a change in price will cause only a minor change in price whereas if a product is not a necessity for consumers it will have an elastic. Demand And The Price Elasticity Of Demand.

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