- Explain any two factors that affect the Price Elasticity of Demand. Give suitable examples.
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Explain any two factors that affect Price Elasticity of Demand.
Two factors that affect Price Elasticity of Demand are as follows:
(i) Availability of substitutes The demand for commodities having close substitutes is very elastic because if there is an increase in the price of a commodity, people will start using substitute commodities.
(ii) Proportion of income spent on the goods Items such as thread, needle will have an inelastic demand as consumers spend a small proportion of their income on such items.
On the other hand, goods on which the consumers spend a large proportion of their income (clothes, food items, etc) tend to have elastic demand.