Factors influencing price elasticity of demand part second
MBA Notes

Factors influencing price elasticity of demand part second

6. Proportion of Expenditure Items that constitute a smaller amount of expenditure in a consumer’s family budget tend to have a relatively inelastic demand, e.g., a cinegoer who sees a film once a month is not likely to give it up when the ticket rates are raised. But one who sees a film once every week perhaps may cut down the number of films seen per week. Similarly, a family which enjoys eating out twice a week, may reduce their rejoicing if the rates go up. But may not hold true in case of a family which does the same only on somebody’s birthday in the house. Cheap or small expenditure items like matches, sugar, kerosene candles, broomstick tend to have more demand in elasticity than expensive or large expenditure items.

7. Durability of the Commodity In the case of durable goods, the demand generally tends to be elastic e.g. furniture, motor cycles, T.V. sets etc. In the case of perishable commodities, on the other hand, demand is relatively inelastic, e.g. milk, vegetables etc.

8. Influence of Habit and Customs There are certain articles which have a demand on account of conventions, customs or habit with which these articles are closely associated and in these cases, elasticity is less, e.g. cigarettes to a smoker or alcohol to an alcoholic have inelastic demand. Consumers are surely habituated to particular things at particular times. For instance, a small tea shop outside college campus will definitely attract a fixed clientele at all times of the day even if it hikes the rate per tea-cup from Rs. 1.50 to Rs. 3.00. in case of customs, an economy like India knows best. Even for the poorest of the poor, a marriage without a mangal sutra will not be considered authentic. A daughter is sent to her in-laws also with many other things in order to secure her life.

9. Complementary of Goods Goods which are jointly demanded have less elasticity, e.g. ball-point pen and refills, motor cycle and petrol etc. have inelastic demand for this reason. In this case, demand for one good affects that of the other, as to satisfy a want, they need to be jointly consumed. Can you think of tea or coffee without sugar, unless the consumer is diabetic.

10. Time In the short period, demand in general will be less elastic, while in the long period, it becomes more elastic. This is because (i) it takes some time for the news of price change to reach all the buyers; (ii) consumers may expect a further change, so they may not react to an immediate change in price; (iii) people are reluctant to change their habits all of a sudden, but gradually, in the long run, their habits may change and so the demand pattern; (iv) durable goods take some time to exhaust their utility. In the long run, lapse of time results in their wearing out, then these are demanded more; (v) demand for certain commodities may be postponed for some time, but, in the long run, it has to be satisfied. For instance, a person dreams of owning a big car someday. He already owns a small and a medium-sized car. An old friend of his, dealing in cars asks him to be patient and wait for a few months, as the market awaits the arrival of a BIG LUXURY car at a very affordable price. This sounds tempting to our man and he thus decides to wait to fulfill his long-cherished dream. Here we cannot say that his demand has died down, but has been postponed for the time-being. The demand will be finally realised in the long run.

11. Recurrence of Demand If the demand for a commodity is of a recurring nature, its price elasticity is higher than that of a commodity which is purchased only once. For instance, motorcycles, V.C.D. players, T.V. sets, cars, two-wheeler etc. are purchased only once, these are big purchases and often done on auspicious days in India like Dasshera, Diwali; also birthdays, anniversaries etc. Once planned, the consumers will rarely cancel their purchase altogether (unless some untoward incident). But the demand for cassettes or Compact Disks may remain relatively elastic. Such goods have recurrent usability and also wear out fast, thus they are to be purchased again and again.

12. Possibility of Postponement When the demand for a product can be postponed (is postponable), it will tend to be price-elastic. In the case of consumption goods which are urgently and immediately required, their demand will be inelastic. For example, life saving drugs during sickness, habituated goods etc. In case of a near and a dear one taking ill, family members will hardly think or pre-evaluate the expenses to be incurred. They will have to pay the hospitalisation charges, doctors’ fee, buy life saving drugs (maybe foreign makes that are very expensive). Similarly, a fitness freak will not be able to postpone his demand for any of the products that he consumes daily for his overall fitness, stopping which he will tend to go out of shape and thus out of job (maybe) like, soya milk, protein biscuits, protein shakes, dates, wheat or corn flakes, musli etc.


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