Question

State with reasons whether you agree or disagree with the following statement:

Elasticity of demand depends upon several factors.

Options

• Agree

• Disagree

Answer 1

I Agree with the given statement.

Explanation:

Elasticity of demand depends upon several factors, which are discussed below:

1. Nature of commodity: By nature, we can classify commodities as necessaries, comforts and luxury goods. Demand for necessaries like foodgrains, medicines, textbooks, etc. is relatively inelastic and for comforts and luxury goods like cars, perfumes, furniture, etc. demand is relatively elastic.
2. Availability of substitutes: Demand for a commodity will be more elastic if its close substitutes are available in the market. For example, lemon juice, sugarcane juice, etc. But with commodities having no close substitutes like salt, the demand will be inelastic.
3. Number of uses: Single use goods have a less elastic demand. Multi-use goods have more elastic demand, For example, coal, electricity, etc.
4. Habits: Habits make demand for certain goods relatively inelastic. For example, addicted goods, drugs, etc.
5. Durability: The demand for durable goods is relatively elastic. For example, furniture, washing machine, etc. Demand for perishable goods is inelastic. For example, milk, vegetables, etc.
6. Complementary goods: The demand for a commodity which is used in conjunction with other commodities to satisfy a single want is relatively inelastic.