Discuss factors that determine demand and supply elasticity. Why is it that demand for some goods is elastic while the demand for others is inelastic. Factors influencing transport requirements and transport supply. The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease in demand. There may be many uses of the product or less uses of the product. The number of close substitutes the more close substitutes there are in the market, the more elastic is demand because consumers find it easy to switch. Factors affecting the demand curve mit school of distance education every manager refers to a demand curve as it is significant in making business decisions. However, the price elasticity differs for different products as it depends on various factors. A number of factors come into play in determining whether demand is price.
Existence of substitutes influence elasticity of demand. As a general rule, the more easily factors can be transferred from the production of one good to that of another, the greater the elasticity of supply. The main reason for change in the elasticity of demand with change in price of some goods is the availability of their competing substitutes. There are a few factors that determine how elastic demand i. When consumers become habitual purchasers of a product, the cross price elasticity of demand against rival products will decrease.
I dont think it is relevant to seek elasticity of supply, because it is a controllable phenomenon a function of profit potential. Pdf the affecting factors of healthcare services demand. Uses of the commodity influence elasticity of demand. Factors affecting price elasticity of demand class 12 economics. The demand for a good depends on several factors, such as price of the good, perceived quality, advertising, income, confidence of consumers and changes in taste and fashion. Nature of the commodity influence elasticity of demand. Important among them are the price of the commodity, the price of related commodities, and income of the consumer, taste and preference of consumers, size of population and various other factors. The elastic or inelastic nature of the demand for a commodity is determined by the following factors. Factors affecting price elasticity of demand economics tutor2u.
Ppt factors affecting demand powerpoint presentation. It is essential to observe the separate effect of each variable on. Elasticity of demand 10 assumption to law of demand law of demand holds good when other things remain the same meaning thereby, the factors affecting demand,other then price, are assumed to be constant. One factor that can affect demand elasticity of a good or service is its price level. It is assumed that there are six main factors affecting the demand. Factors affecting the price elasticity of demand economics the following points highlight the seven main factors affecting the price elasticity of demand. Factors that determine elasticity of demand economics essay. Gregory mankiws principles of microeconomics, 2nd edition, chapter 5. Factors affecting elasticity of demand linkedin slideshare. Price that is why demand is the ability and willingness to buy a product at given price and a particular time. For example, a small change in price of ac may affect its demand to a considerable extentwhereas, large change in price of salt. Factors affecting price elasticity of demand ped youtube. Various factors which affect the elasticity of demand of a commodity are. Kvs, delhi region definition it is defined as proportionate change in quantity demanded to proportionate change in price.
Kvs, delhi region factors affecting elasticity of demand 2. The individual demand curve illustrates the price people are willing to pay for a. Elasticity of demand is an emergent phenomenon because it depends on the price perceived by large number of consumer. According to this formula, the elasticity of demand can be defined as a percentage change in demand as a result of the percentage change in price. There are several factors which influence the quantity demanded of a commodity. Explain how demand and supply elasticity affect tax policy and the consequences of business decisions. Factors affecting cross elasticity of demand answers. Factors that influence the demand for mobile phones. The factors influencing income elasticity of demand. Type of good there are three types of goods, necessity, comfort, and luxury goods. In this study, the decision to have insura nce is assumed to depend on.
Among the key factors influencing demand for capital goods are the price of capital goods, price of other factors of production, profit levels, corporation tax, income, interest rates, confidence levels and advances in technology. Sample unit 8 income elasticity of demand pearson schools and. The objective of the study was to assess the influence of product certification on demand of consumer products. An increase of freight rates will lead to a proportionate decrease in demand. So it is important to look at consumers decision process and recognize the factors that determine the consumers choice between various brands of mobile phones. Key factors influencing the global passenger transport. If there are many substitutes for a particular good, the good will be much more elastic i. Commodities 1 population size the demand for products will increase the more people in the market who want to buy the product. In studying the elasticity of demand, we cannot decisively say which factor is influencing in a bigger way. This short revision video looks at eight factors that can influence the coefficient of price elasticity of demand ped for different products.
Some of the major factors affecting the elasticity of demand of a commodity are as follows. Below are the factors that exert the greatest influence on the demand elasticity of a product or service. Factors affecting consumer behavior of purchasing tobacco. A look at the factors that affect elasticity of demand. Transport demand refers to the amount and type of travel that people would choose under specific conditions. Utilitycontrolled factors influencing water demand historically, most of the water demand literature has focused on price because of its role as a short and longterm demand management tool. Below are the important factors that directly or indirectly influence the degree of demand to any small change in. Factors affecting price elasticity of demand prelim.
Relationship between elasticity and revenue or consumers expenditures. Demand functions are the factors on which our demand depends. Factors influencing total supply factors that influence total demand for u. The larger the number of close substitutes of a good available in the market, greater the elasticity for that good. Since agricultural commodities are food products, and everyone needs food to. Takshila learning offers ncert economics class 12 topics in one of the simplest, easiest and most convenient options for the students.
The following section provides an overview of past attempts to identify the role that the price of water plays in. Factors that influence the demand for mobile phones mobile phone markets are one of the most turbulent market environments today, due to increased competition and change. As in the case of demand, elasticity of supply also depends on the definition of the commodity. Price elasticity of demand the effect of price change on demand is measured by price elasticity. Why is it that demand for some goods is elastic while the demand for others is. A commodity for a person may be a necessity, a comfort or. The following points highlight the seven main factors affecting the price elasticity of demand. Six factors that can shift demand curves are summarized in figure 9, below. Pdf factors influencing transport requirements and. For example, the change in the price level for a luxury car can. This report describes concepts related to transport demand, investigates the influence that factors such as prices and service quality have on travel activity, and how these impacts can be measured using elasticity values. Understanding transport demands and elasticities how.
A rise in the price of capital goods will cause a contraction in. The purpose of the study is to establish the factors influencing demand of consumer products among supermarket shoppers in kimilili municipal council bungoma county in kenya. What are the factors that affect the price elasticity of. Other things being equal, the demand for necessities is inelastic or less elastic than that for comforts and luxuries. Factors affecting the price elasticity of demand economics. As discussed earlier, the price elasticity of demand of a product reflects the change in the quantity demanded as a result of a change in price. A change in price does not always lead to the same proportionate change in demand. Price elasticity of demand has been defined as the actual degree of responsiveness of the quantity that is demanded of a good or services in response to the changes in its actual price i.
Price elasticity is defined as the percentage change in consumption in response to 1% change in price. What factors influence a change in supply elasticity. The significance of income elasticity of demand to businesses. Factors affecting price elasticity of demand economics. Pdf the main purpose of the study is to reveal the factors that influence the demand of health services and the relationship between them and. Cross elasticity coefficient is defined as when the price of a particular commodity rises how is the demand of another commodity changing. The net result of demand being either elastic or inelastic will depend on the interplay of all these influences stated above. What are the main factors that affect the coefficient of price elasticity of demand.
Cross price elasticity of demand economics tutor2u. What are factors influencing the elasticity of supply. Factors influencing demand of consumer products among. Several researchers have been using aimcge as a core of climate change mitigation study hasegawa et al. Online classes covering all topics with easily accessible notes, can help students gain knowledge at their home at their own pace and convenience. Notice that a change in the price of the good or service itself. Air travel and train travel are weak substitutes for intercontinental flights but closer substitutes for journeys of around 200400km e. For maritime economics, elasticity of demand indicates the responsiveness of the demand for the different shipping services to a change of the various freight prices.
Influences the elasticity of demand to a larger extent. Price elasticity of demand h refers to the responsiveness of quantity demanded to a change of price. If the goods are complements like say for example petrol. What factors influence a change in demand elasticity. We can look at either an individual demand curve or the total demand in the economy. There are several factors that affect how elastic or inelastic the price elasticity of demand is, such as the availability of substitutes, the timeframe, the share of income, whether a good is a luxury vs. Elasticity of demand of a commodity is influenced by its nature. Elasticity of supply is a measure of a producers ability to cope effectively with changes in demand. The result is that firms may be able to charge a higher price, increase their total revenue and achieve higher profits. Price elasticity of demand measures the responsiveness of demand of a commodity to a change in its price.
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