What is elasticity and what are its main determinants

If no substitutes are available, demand for goods tends to be inelastic. The use of machines may reduce the cost of production and price. But this fear is not always true because use of machines may not reduce demand for labour.

9 Main Determinants of Price Elasticity of Demand – Explained!

Number of uses of a commodity: The elasticity of demand also depends on the number of uses of the commodity. Organizations go through an inevitable progression from growth through maturity, revival, and eventually decline. Life is full of trade-offs. The goods which have close substitutes are said to have elastic demand.

Demand for durable goods is more elastic than perishable goods non-durable because when the price of former increases, people either get the old one repaired or buy a second hand.

One change will be positive, the other negative. The firm stays with its current business and product markets; maintains the existing level of effort; and is satisfied with incremental growth.

The above mentioned list of factors is not exhaustive. Horizontal growth occurs when the firm expands products into new geographic areas or increases the range of products and services in current markets.

Hence, there is a lagging effect on supply. For example, if cement, bricks, wood and other building materials become costlier, people will postpone the construction of houses. Pricing of joint supply products: A commodity has elastic demand if there are close substitutes of it.

The demand in each single use of such commodities may be inelastic, but the demand in all uses taken together is elastic. Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation towards growth by asking the following three questions: However, when it comes to non perishable goods it has been observed that the supply is usually inelastic since producers can hold on for as long as they have to.

For inelastic goods, because of the inverse nature of the relationship between price and quantity demanded i. Some of these factors are within the control of the organization whereas others may be beyond their control.

The term is sometimes limited to monetary costs, but it can include non-monetary costs such as time, discomfort and risk. Within-Country Trends in Income per Capita: Therefore, the demand for such commodities is elastic.

Whereas, if the product has several uses, such as raw material coal, iron, steel, etc. Elasticity of demand for a commodity is also influenced by the elasticity of its jointly demanded commodities. Therefore, price elasticity of building materials will be high.

Whereas, if the product has several uses, such as raw material coal, iron, steel, etc. This is an important determinant of elasticity of supply. But, however, the demand for the prestige goods is said to be inelastic, because people are ready to buy these commodities at any price, such as antiques, gems, stones, etc.

Such as when the price falls the demand increases and vice-versa. If its price rises, it will not be used in less important uses and the quantity demanded will fall appreciably. Hence, when the price is raised, the total revenue falls, and vice versa.

The policy of price-discrimination is profitable to the monopolist when elasticity of demand for his product is different in different sub-markets. They also choose this strategy when they go through a period of rapid expansion and need to consolidate their operations before going for another bout of expansion.

The most frequently used form of elasticity in transportation analyses is the arc elasticity. The public utility enterprises decide their price policy on the basis of elasticity of demand. A country will benefit from international trade when: Amount of Money Spent: Shifts in the Global Allocation of Capital: As a result of increased demand the production will also increase and more workers will be employed.

This chapter describes techniques used to define and quantify these trade-offs, which can evaluate Travel Demands and help predict how various types of changes to the transportation system are likely to affect travel behavior.

Because producers consider marginal cost of production while making their decisions, it has become an important determinant in the elasticity of supply. Change in the Marginal Effect of External Financial Conditions When Selected Domestic Attributes Improve Emerging market and developing economies have become increasingly important in the global economy in recent years.Determinants/Factors of Price Elasticity of Supply: The main determinants/factors which determine the degree of price elasticity of supply are as under: (i) Time period.

Time is the most significant factor which affects the elasticity of supply. The paper identifies the most important determinants of capital structure of listed Indian firms comprising both private sector companies and government companies for the period – Price elasticity of demand has four determinants: product necessity, how many substitutes for the product there are, how large a percentage of income the product costs, and how frequently its purchased, according to Economics Help.

Assuming that you fully understand the concept of elasticity of demand, these are the main determinants: Other competitors in the market: If there are many competitors, then the product will be very price elastic because there are many alternatives that people can switch to.

Blood Vessel Elasticity (DPA)

Stability strategy is a strategy in which the organization retains its present strategy at the corporate level and continues focusing on its present products and markets.

Like price elasticity of demand, price elasticity of supply is also dependent on many factors. Some of these factors are within the control of the organization whereas others may be beyond their control.

Regardless of the control, if the management has knowledge about these factors, it can manage.

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What is elasticity and what are its main determinants
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