Possibility of postponing consumption: The demand for those goods whose consumption can be postponed for sometime is said to be elastic. Possibility of Deferment of Consumption 7. Remember that the supply curve is upward sloping. People use those commodities for certain urgent use in response to a rise in price. Demand tends to be more elastic if the time involved is long.
Suppliers simply dip into what they have stocked. This is due to the fact that consumers have already purchased these goods in sample quantities; therefore, change in the price of these goods causes a little change in their demand. In highly competitive industries, price differentials are usually less among competing brands because of the ability customers have to select lower-priced alternatives. What effect does the current supply and current demand have on this product? If for a commodity close substitutes are available, its demand tends to be elastic. The utility of a durable good is destroyed continuously. Time Period The Elasticity of Demand is highly dependent on the time period. For example, demand for medicines is inelastic.
The degree to which demand or supply reacts to a change in price is called. Habits of Consumers influence Elasticity of Demand If the consumers are addicted to some habits and customs, then, the demand of the commodity will be inelastic. Hazina is a Swahili word which means treasure. A substitute may be close and remote. Type of Product Products that customers consider essentials or necessities tend to have less elasticity than products viewed as luxury or discretionary. Most people in this case might not willing to give up their morning cup of caffeine no matter what the price. An important part of understanding an economy is learning how the supply and demand of a good or service an output reacts to key economic factors.
They have more time to search for cheaper substitutes and switch their spending. The Number of Uses of a Commodity 4. Availability of Substitute Goods: If close substitutes for a particular good are available in the market, then the demand for the good would be relatively more elastic. To make necessary arrangement for a substitute fuel, the consumer should make a like purchasing kerosene stove or gas oven so that the substitute fuel may be used. Time and Elasticity: The element of time also influences the elasticity of demand for a commodity.
This also affects demand since it regulates how much people can spend in general. These include luxury assets such as jewelry and cars. Such as car and petrol, pen and ink, etc. They are to be satisfied first. The longer the period of time, the greater is the ease with which both consumers and businessmen can substitute one commodity for another. Customers don't have options and feel compelled to buy from the given provider.
Such as the higher range products are usually bought by the rich people, and they do not care much about the change in the price and hence the demand for such higher range commodities is said to be inelastic. It happens because consumers find it difficult to change their habits, in the short period, in order to respond to a change in the price of the given commodity. In this case, the supply is more elastic. The availability of a substitute makes demand for a good or service sensitive to price changes. Likewise, when the business firms find that the price of a certain material has risen, then it may not be possible for them to substitute that material by some other relatively cheaper one. Cinemas The growing popularity and lower cost of digitally-streamed music is causing big shifts in consumer preferences in the global music industry. Similarly, if the price of milk decreases, consumers may increase its consumption by using it for various purposes, such as making curd, butter, cream, and ghee.
When a commodity is a comfort like fan, refrigerator, etc. For example, a rise in the price of Pepsi encourages buyers to buy Coke and vice-versa. Many people opt to save money rather than splurge on luxury items during an economic downturn. At a very high range of prices, the demand will be inelastic; so also at a very low range of prices, the demand will be inelastic. Also, the lower range commodities have inelastic demand because these are already low priced and can be bought by any sections of the society. Though wheat is a necessity as food for people, a rise in price may make the consumers go in for other cereals.
Article shared by The elasticity of demand for an input measures the degree of the response of the quantity demanded to a change in its price. For example, suppose an economy is facing a downturn and many workers are laid off. The elasticity of supply works similarly to that of demand. This is because the consumption of a luxury good, unlike that of a necessary commodity, can be deferred. That is why the demand for those commodities is in elastic.
Output will only increase once these costs are covered by the increase in production. Generally, the smaller the price of a good, the less is the elasticity of its demand. Hence, even when the prices of such goods increase, there is no change in their demand. In the same way, if the price of a commodity is very low, whoever wants to buy, will be able to do so. Even in necessities, commodities having substitutes will have elastic demand and commodities having no substitute will have inelastic demand. Thus, the demand for lubricating oil tends to be inelastic. This is due to the fact that over a period of time, consumers get adjusted to change in prices or new prices.
However, if the price of caffeine itself were to go up, we would probably see little change in the consumption of coffee or tea because there may be few good substitutes for caffeine. On the other hand, the items whose demand can be postponed is said to have elastic demand. The product can be categorized as luxury, convenience, necessary goods. Any minor changes in prices will not affect its demand as these commodities are demanded only by richer people. Proportion of Income Spent on the Good 5.