Factors Affecting Economic Elasticity

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What is Elasticity Economic elasticity is defined as the responsiveness of a dependent economic variable to changes in influencing factors, such as price, income and price of related products. It is a measure of responsiveness between any two variables. I. Elasticity of Demand Demand elasticity refers to the reaction or the response of the consumers to changes in determinants of demand such as price, income and price of related products. As discussed earlier, when price of commodities increases, the logical behavior of the consumer is to decrease consumption. However, the degree of reaction varies from one consumer to another, taking into values and preferences. A. What are the Factors Affecting Demand Elasticity 1. Availability of Close Substitutes Substitute goods are goods that can be used in activities aimed to satisfy the same needs, one in the place of another. Considering other factors constant, the consumer substitution effect showed that there is an inverse relationship between quantity demanded and price.. The larger the number and closer the substitutes available, the higher the elasticity is likely to be, as people can easily switch from one good to another if an even minor price change is made. There is a strong substitution effect. Substitutes can be classified as close substitutes, when there is a high cross elasticity of demand. For example, there are many powdered laundry detergent in the market that it is easy for the consumers to look for

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