Factors Affecting Price Elasticity Of Demand Essay

Factors Affecting Price Elasticity Of Demand Essay-87
As the law of demand indicates, when the price of a good/service increases, the demand of it will decrease.Conversely, when the price of a product decreases, the demand of the product will increase.

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High priced commodities are luxurious goods and low priced goods are necessaries.

Luxurious goods are mainly consumed by the people of high income brackets.

One of the factors that affect the PED is the substitutes and complementary product that a good/service has.

And cross-price elasticity of demand measures the responsiveness of demand for good X following a change in the price of a related good Y.

If the PED is smaller than one, the product will be price inelastic (price insensitive), where a percentage change in price will lead to a smaller percentage change in quantity demanded.

And when PED=1, the product is unit elastic, where an X% change in price will result in an X% change in quantity demanded.

Nature of goods: Elasticity of demand depends on the nature of goods.

The elasticity of demand for a commodity depends upon the necessity of it for a human life.

For example if the price of a colour TV falls from Rs 15000 to Rs 5000 the price comes to the reach of the people who were unable to buy at the old price. Thus with a rise or fall in price the amount demanded of colour TV remarkably falls or rise.

But if the price of salt raises from Rs 2.00 to Rs 5.00 it account for no such remarkable fall in the quantity demanded of salt. Force of habit: A repeated and constant use of a commodity by a person forms habit. Thus in such a case the consumption of the commodity can’t be abstained in spite of the rise in price.

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