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DEFINITION
• It is defined as proportionate change in
quantity demanded to proportionate
change in price .
• Price elasticity of demand measures the
responsiveness of demand of a
commodity to a change in its price .
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FACTORS AFFECTING ELASTICITY OF
DEMAND
• Nature of commodity
• Availability of close substitute
• Number of uses
• Proportion of total expenditure spent on the
product
• Level of income Income of consumer
• Habit
• Time period
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Nature of commodity
• Necessities - Less elastic
• Comforts - Elastic
• Luxuries - More elastic
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2) Availability of Close Substitutes
• Good having number of close substitutes will
have an elastic demand
• Good with no close substitute will have an
inelastic demand
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NUMBER OF USES
• More the number of uses a commodity can be
put to- More elastic is the demand and vice
versa.
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PROPORTION OF TOTAL EXPENDITURE
SPENT ON A COMMODITY
Larger the proportion of total expenditure
spent on a good higher will be the
elasticity and vice versa.
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LEVEL OF INCOME
• Higher the level of income, lower the elasticity
of demand and vice versa.
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HABIT
• If you are habituated to a particular good,
elasticity will be less and vice versa.
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TIME PERIOD
• During short period most of the commodities
are having less elasticity of demand.
• In the long run when substitutes are available
demand for the goods will become more
elastic
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Questions for self-evaluation
• What is price elasticity of demand?
• Which has greater elasticity-luxuries or
necessities?
• When is the demand of a commodity called
elastic?
• What will be the elasticity of demand if it has
close substitutes?
• Why is the demand for water inelastic?
