DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : K.DORASWAMY
Designation : Lecturer in CCP
Institute : Govt. Poly. for Women, Kakinada
Semester : V Semester
Subject : Business Economics
Subject Code : CCP-502
Duration : 50minutes
Major topic : Consumer Behaviour
Sub Topic : Factors influencing Elasticity of
Demand
Teaching Aids : PowerPoint, Animations
CCP502.17 1
 Objectives

On completion of this period, you would be able to

 Explain the various factors influencing Elasticity of

Demand

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RECAP
So far we have learnt,
 Perfectly Elastic
 Relatively Perfect Elasticity
 Unit Elastic
 Inelastic Demand
 Relatively Inelastic Demand

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Factors influencing elasticity of
demand
 The demand for necessaries will be inelastic.
 The demand for luxuries will be elastic.
 The necessaries are purchased whether the
prices are high or low.
 Luxuries are not essential goods.
 When the prices rises people buy less.

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Factors influencing elasticity of
demand (contd.)
 When the prices come down people buy more.
 The demand for luxuries changes very much.
 We can’t make a generalization that the demand
for necessaries is always inelastic and for luxuries
always elastic.

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Factors influencing elasticity of
demand (contd.)
 Certain goods may be luxuries for some people,
but necessaries for others.
 The elasticity for the same commodity may differ
from place to place, from person to person and
from time to time.
 Even in necessaries commodities having
substitutes have elastic demand.

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Factors influencing elasticity of
demand (contd.)
 Commodities having no substitutes have inelastic
limit.
 The elasticity on the basis of nature of commodity
can be studied only on a comparative basis.

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Variety of uses of a commodity
 If a commodity has a number of uses, the
demand will be relatively elastic.
 The same commodity may have inelastic demand
in one use and elastic demand in another use.

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Substitutes

 If a commodity has a substitute the demand for it

will be elasticity.
 Tea and Coffee are substitutes.
 If the price of the coffee rises people may use
tea instead of coffee.
 The demand for coffee falls.
 If a commodity has more substitutes its demand
will be inelastic.

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Postponement of demand
 If the demand can be postponed the commodity
will have elastic demand.
 When the price goes up people prefer to wait for
some time and buy only when the price comes
down.
 In other words, they will postpone their
purchases.

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Amount of spent
 If a consumer spends only a small amount of a
commodity its demand will be inelastic.
 For example, the amount we spend on salt or
matches is very small.
 However if the amount spent on the commodity is
large, demand will be elastic.

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Summary
We have so far learnt,

The various factors that influence the

Elasticity of Demand:

 Nature of the Commodity – Necessities and

Luxuries
 Variety or Multiplicity of Uses of a commodity
 Substitutes
 Postponement of Demand
 Amount spent

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Frequently Asked Questions
1. Explain the various factors that influence the Elasticity
of Demand

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