Briefly discuss the factors which affect the own price elasticity of demand

Own price elasticity of demand refers to the degree of responsiveness of the quantity demanded of a
commodity to changes in the commodity's own price. The following factors affect price
elasticity of demand:

i. Availability of substitutes:
The greater the number of substitutes available for a commodity over a relevant price range, the
greater would be its elasticity of demand. This is because consumers can switch consumption to the
substitutes in the event of an increase in the price of the commodity. The consumer has a wide
variety to choose from for example, the range of bar soaps in the market (ED is greater than one).
If perfect substitutes of a commodity are available, its demand is likely to be highly elastic. If no
substitutes are available for a commodity, its demand would be price inelastic since the consumer
has no choice.

ii. Proportion of income spent on commodity
Where the proportion of income spent on a commodity is very small, its demand would be price
inelastic for example matchboxes and salt.
On the other hand, if the proportion of income spent on the commodity is high, demand would be
price elastic for example demand for cars will be sensitive to changes in price. Thus, for instance, an
increase in price of a matchbox by 30% will not have the same effect on quantity demanded as a
30% increase in the price of a car or television set.

iii. Time
Over time, consumers? demand patterns are likely to change. If the price of a good
increases like the price of meat, initially, there will be very little change in demand since
consumers? take time to adjust their buying habits in response to the change in price. This
means that demand is inelastic in the short run and elastic in the long run.
In the long run, the consumer would have gotten knowledge of the substitutes available. More over,
consumers may be locked into a particular technology – If the cost of electricity rises sharply, people
cannot immediately switch to gas if they have electric cookers.

iv. Number of uses:
The greater the number of uses to which a commodity can be put, the greater would be its elasticity
of demand. This is because many units of the commodity are needed. For example, electricity has
several uses like heating, cooking and lighting. When the price of electricity increases, the consumer
can use coal for heating and cooking and lamps for lighting. People could also save on the usage of
such goods.

v. Durability
The greater the durability of a product, the greater its elasticity of demand will tend to be; for
example, if the price of salt increases it cannot be made to last longer so demand would be price
inelastic. However, furniture can be made to last longer through careful use and so demand would
be relatively elastic.

vi. Width of the market
The wider the definition of the market for a commodity, the more inelastic its demand will be; for
example, the demand for a particular brand of milk like Tuzo will tend to be elastic because of the
other brands (like Brookside, Limuru, KCC, Molo milk etc.) which are close substitutes. However,
the total demand for milk will be price inelastic.

vii. Nature of the commodity
Generally, the demand for luxuries will tend to be price elastic while that for necessities will tend to be price inelastic.
However, if no obvious substitutes exist for a luxurious commodity its demand would be price
inelastic and if there are substitutes for a necessity, its demand will tend to be price elastic.

viii. Level of price
Price elasticity of demand is different at different levels of price. At higher levels of price, demand is price elastic and at lower levels of price demand is price inelastic.

ix. Habit
This involves products which consumers get addicted to for example cigarettes. The demand for
such commodities will tend to be price inelastic as they are regarded as "necessities" by
those attached to them. In extreme cases where the consumer eventually becomes completely
incapable of departure, demand tends to be perfectly inelastic.

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Wilfykil answered the question on February 4, 2019 at 12:23