Elasticity of Demand — Practice Quiz

Salt, Life-saving medicines, Basic food items like wheat

Necessities like salt, medicines, and basic food items have inelastic demand because people need them regardless of price changes. Luxury items like cars and designer clothes have elastic demand.

Availability of close substitutes

When close substitutes are available, consumers can easily switch to alternatives if the price rises, making demand more elastic. Necessities, goods with no substitutes, and habit-forming goods have inelastic demand.

Demand is elastic

According to the percentage method, when the coefficient of price elasticity (Ed) works out to be greater than 1, it means the percentage change in quantity demanded is larger than the percentage change in price, a situation classified as elastic demand. This contrasts with inelastic demand, where Ed is less than 1, and unit elastic demand, where Ed equals exactly 1.

Nature of the commodity, Availability of substitutes, Time period, Consumer's habits

All these factors influence price elasticity: nature of commodity (necessity vs luxury), substitute availability, time period for adjustment, and consumer habits all determine how responsive demand is to price changes.