| Explain any three factors affecting the 'Price elasticity of demand'. |
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| What do you understand by price elasticity of demand? How does the level of price of a good affect its Elasticity of Demand\[({{E}_{d}})\] ? |
Answer:
Factors affecting price elasticity of demand are: (i) Availability of Substitutes Demand for goods which have close substitutes is relatively more elastic, as when price of such good rises, consumers have the option of shifting to its substitute, e.g. Tea and coffee. (ii) Habit of Consumers Goods to which consumers become habitual will have inelastic demand, as consumers are addicted to these goods, e.g. Cigarettes and liquor. (iii)Time Period Demand is inelastic in short period and elastic in long period as long period is long enough for a consumer to change his consumption habits. Price elasticity of demand measures the responsiveness in demand when price of a commodity changes. Highly priced commodities like diamonds and low priced commodities such as pencils have low price elasticity, since a change in their prices have very little effect on their demand. But commodities having price in idle range exhibit elastic demand, e.g. coolers, fans, cycles, etc.
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