How does the nature of a commodity influence it's price elasticity of demand?

Question

Answer

Nature of commodity: Elasticity of demandof a commodity is influenced by its nature. ... When a commodity is a necessity like food grains, vegetables, medicines, etc., its demand is generally inelastic as it is required for human survival and its demand does not fluctuate much with change in price.

Answer

Nature of a Commodity and its Price Elasticity of Demand

The price elasticity of demand is a measure of the responsiveness of the quantity demanded of a product or service to a change in its price. The nature of the commodity has a significant impact on its price elasticity of demand.

Availability of Substitutes

The availability of substitutes is one of the most important factors that influence the price elasticity of demand for a commodity. If a commodity has close substitutes, then consumers can easily switch to other products if the price of the commodity increases. As a result, the demand for the commodity is likely to be more elastic.

Necessity and Luxury Goods

The necessity of a commodity also affects its price elasticity of demand. Necessities like food, clothing, and shelter have inelastic demand as consumers will continue to buy them regardless of the price. On the other hand, luxury goods have elastic demand as consumers can easily cut back on these items if the price increases.

Time Horizon

The time horizon is another important factor that affects the price elasticity of demand for a commodity. In the short run, consumers may not be able to adjust their consumption patterns to changes in price. As a result, the demand for the commodity may be inelastic. However, in the long run, consumers may be able to find substitutes or adjust their consumption patterns, making the demand for the commodity more elastic.

Brand Loyalty

The level of brand loyalty for a commodity also influences its price elasticity of demand. If consumers are loyal to a particular brand, they may be less likely to switch to a substitute product if the price of the commodity increases. As a result, the demand for the commodity may be inelastic.

Income Elasticity

The income elasticity of demand for a commodity also plays a role in its price elasticity of demand. If a commodity is a normal good, as income increases, the demand for the commodity will also increase. On the other hand, if a commodity is an inferior good, as income increases, the demand for the commodity decreases.

Conclusion

The nature of a commodity has a significant impact on its price elasticity of demand. Understanding the factors that influence the price elasticity of demand can help businesses make informed decisions about pricing and marketing strategies.

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