IGCSE Economics Paper-2: Specimen Questions with Answers 89 - 89 of 100

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Passage

Demand usually varies with price but the extent of variation is not uniform in all cases.

Question 89 (3 of 5 Based on Passage)

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Short Answer▾

On what factors elasticity of demand depends?

Explanation

When the Demand for a Commodity is Elastic or Inelastic Will Depend on Variety of Factors

  • Nature of commodity: Nature of satisfaction the goods give, may be classifies into luxury, comfort or necessary. In general luxury and comfort goods are price elastic, while necessary goods are price inelastic. Example demand for food grains is inelastic whereas of radio is elastic.
  • Availability of substitute: Where there exists a close substitute in the relevant price range, its demand will tend to be elastic. But in respect of commodities having no substitute, their demand will be somewhat inelastic. Thus, for example, demand for salt, potatoes etc. is highly inelastic as there are no close substitutes.
  • Number of uses: Single use goods will have generally less elastic demand as compared to multi-use goods, e, for commodities like coal or electricity having a composite demand, elasticity is relatively high. With fall in price these commodities may be demanded increasingly for various uses.
  • Consumer՚s income: Generally, larger income, the demand for overall commodities tends to be relatively inelastic. The demand pattern of high-income earners is rarely affected even by the price changes. Similarly, redistribution of income in favor of low-income people may tend to make demand for some goods relatively elastic.

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