It is important to know that demand for some
goods is more elastic (ep>1,
percentage change in quantity demanded is more than percentage change in price)
while for others it is less elastic (ep<1,
percentage change in quantity demanded is less than percentage change in price),
depending on many factors.
Some of the
important determinants of price elasticity of demand are:
1) Nature of commodity :
Nature of commodity
refers to whether the commodity is ‘necessary’,
‘luxury’ or ‘comfort’ in nature.
‘Necessary’ commodities, such as food
items are essential for existence, these goods have to be purchased in fixed
quantities, whether the price is high or low.
A change in the price of the
necessities may have a small impact on the demand i.e. have inelastic demand (ep<1).
‘luxury’ or ‘comfort’ commodities, such as television, a.c, furniture etc are
not necessary for existence and their consumption can be postponed. Thus their
demand changes by larger amount due to a small change in price i.e. have elastic demand (ep>1).
The demand for necessities is inelastic and the demand for
luxuries and comforts is elastic.
