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Unit-6: Theory of Demand and Elasticity of Demand

remain the same. The comparison of elasticity of demand on different points of the demand curve AB Notes
P __
can be done by the comparison of .

Q
OP
(i) this ratio on point A = _____ = ∞ (Infinity)
Zero
Zero
_____

(ii) this ratio on point B = OB = 0 (Zero)
P __

(iii) As we move down to point B from point A we come to know that ratio of decreases from ∞
Q
____
(infinity) to 0 (zero). It is clear from the figure that this ratio at point R is equal to OK and is equal

OT
OM
____
____

to ____ at point S. Value of OK is definitely more in comparison to OM . Therefore, it is proved that

OT
ON
ON
as we move down on demand curve, price of commodity goes on decreasing and value of related
elasticity of demand goes on decreasing.
6.15 Factors Determining the Price Elasticity of Demand
As we see in actual life that elasticity of demand of some commodities is unity, elasticity of demand of
some commodities is more than the unit or Elastic and elasticity of demand for some commodities is
less than the unity or Inelastic. The reason behind this is that elasticity of demand is affected by many
factors. The main factors of determining the elasticity of demand are as follows:
1. Nature of the Commodity: In economics, classification of commodities is mainly done in three
categories; they are (i) Necessaries, (ii) Comforts and (iii) Luxuries. Generally, it has been seen that
the demand of mandatory commodities like salt, kerosene oil, match boxes etc. is less than unity
or Inelastic. The reason is that a customer buys a limited quantity of these commodities, whether
price of these commodities increases or decreases. So, the change in their prices does not affect their
demand as much. Opposite to it the demand of luxuries like air conditioner, expensive furniture
etc. is more than the unity or Elastic. The reason is that the changes in their prices affect very much
their demand. Price elasticity of comfortable things like transistor, cooler, fan etc. is equal to unity
or near to it.
2. Availability of Substitutes: The elasticity of demand will be more as much as the availability of
substitutes of the commodity. The substitutes of commodity like substitute of tea; coffee, substitute
of pen; ball-pen, substitute of milkshake; lassi, substitute of sandals; sleeper etc. are available on
worth price, so demands of these commodity is elastic. The reason is that if price of any commodity
decreased in the comparison of its substitute then people will purchase it in more quantity. For
example, if coffee costs cheap in comparison of tea then demand of coffee will increase more, and
demand of tea will decrease more. The demand of the commodities which do not have their substitutes
like cigarette, wine etc. is inelastic.
3. Goods with Different Uses: The elasticity of demand is more elastic as much as the uses of a
commodity. The elasticity of demand is elastic of those goods which are included in different uses.
For example, the electricity has different uses. It is used in bulb, heater, heating iron etc.
If price of electricity will increase then it will be used in the important work like bulb for lightning
only. In this way, demand of electricity will decrease by more in comparison of upcoming increment
in price.
4. Postponement of Demand: The demand of those commodities can be postponed these demands are
elastic. For example, if demand of building house can be postponed then the demand of constituents
of house like bricks, sand, cement, limestone etc. will be elastic. Opposite to it, demands of those
commodities cannot be postponed for future, like food on hunger and liquids on thirst, and then
the demand is inelastic.

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