Price Elasticity of Demand Factors Quiz

Price Elasticity of Demand

• The primary factor determining price elasticity of demand is the availability of close substitutes for the commodity.
• When a commodity has many close substitutes, an increase in its price typically leads to a decrease in its demand as consumers switch to other options.

Impact of Substitutes

• The availability of substitutes makes demand more elastic since consumers can easily replace the product if prices rise.
• A commodity with no substitutes will generally experience constant demand regardless of price changes, indicating inelastic demand.

Campa Cola Case Study

• Demand for Campa Cola is considered elastic due to the presence of numerous alternatives in the market.
• A decrease in the price of Campa Cola likely leads to a significant increase in consumer purchases, reflecting its elastic nature.
• The primary reason for the elasticity of Campa Cola's demand is the strong competition and variety of substitute drinks available.

Inelastic Demand Examples

• Common salt demonstrates inelastic demand since it has few substitutes and is a necessity for consumers.

Factors Influencing Elasticity

• Various factors determine elasticity, including the number of substitutes, necessity vs luxury status, and the percentage of income spent on the good.
• The number of uses for a commodity can enhance its elasticity; a product with multiple uses is more likely to see varied consumer response to price changes.

Specific Market Insights

• The high elasticity of demand for cloth in India may be attributed to numerous available substitutes, cultural variations, and varying cloth uses.

Inelastic Product Identification

• Based on the context, essential products with little to no substitutes, such as common salt, are likely to exhibit inelastic demand.