What is ‘elasticity of demand’? Explain the factors determining elasticity of demand.

Concept of Elasticity of Demand
         The term elasticity means responsiveness or sensitivity. The concept of elasticity of demand measures the responsiveness of quantity demanded to a change in price.


According to Prof. Marshall
"Elasticity of demand is great or small according to the amount demand which increases much or little for a given fall in price, and quantity demanded decreases much or little for a given rise in price."

According to P.A. Samuelson
           "Price elasticity is a concept for measuring how much the quantity demanded responds to changing price."

It is clear from the above definitions that elasticity of demand is a technical term which describes the responsiveness of change in the quantity demanded to a fall or rise in its price. In other words it is the ratio of percentage change in quantity. demanded of a commodity to a percentage change in pike.

Factors Determining Elasticity of Demand
         Following are the factors which influence Elasticity of Demand
1.       Nature of Commodities: Commodities may be either necessaries or, luxuries. Normally, elasticity of demand for necessaries is inelastic and for luxurious demand tends to the elastic.
2.       Durability : The demand for durable goods is elastic, whereas the demand for perishable goods is inelastic.
3.       Substitute Goods : Availability of substitutes also determine Elasticity of Demand. The larger the number of substitutes for a commodity in the market, demand tends to the more elastic.
4.       Uses of a Commodity : When commodity can be put to several uses. its demand is elastic. The demand for electricity is elastic.
5.       Price : Goods, which are very highly priced or very low price demand, is normally inelastic. e.g. Demand for match box is inelastic.
6.       Habits : Habits influence Elasticity of Demand. The demand, which satisfy the habits, is normally inelastic. For instance, the demand for cigarettes is inelastic. Also consumption of essential goods cannot be postponed therefore demand for them is inelastic.
7.       Income of Consumer : When income level is high demand is normally inelastic, and demand is elastic at a very low level of income.
8.       Proportion of Income Spent : When proportion of income spent is large demand for goods tend to the inelastic. For instance, demand for food grains is inelastic.

9.       Complementary Goods : By and large, demand for complementary goods is inelastic. Because complementary goods such as motor car and petrol are demanded jointly.