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Explain the factors affecting the Ped.

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Presentation on theme: "Explain the factors affecting the Ped."— Presentation transcript:

1 Explain the factors affecting the Ped.
1. Meaning of Ped: It is the degree of responsiveness of demand to change in the price of the product.

2 2. Factors Affecting Ped:
Nature of the Product: If the product is a basic necessity, the elasticity will be low. If the product is a luxury, the elasticity will be high. This is because the demand for the necessities can’t be reduced much when their price rises. On the contrary, the demand for the luxury goods can be reduced relatively more as they are not necessary for survival. Number of Substitutes: If the product has many substitutes, it will have a higher elasticity whereas the product without or less substitutes will have a lesser elasticity. Closeness of the substitutes: Products having very close substitutes will have high elasticity whereas the products having poor substitutes will have a lower elasticity. Durability of the product: If the product is durable or non-perishable, it will have high elasticity whereas if the product is non-durable or perishable, it will have low elasticity. Number of Uses: If the product has multiple uses, it will have high elasticity whereas single- purpose products will have low elasticity. Time Duration: In the short-run when less time is available for adjustment, the elasticity will be less whereas in the long run when consumer has more time to adjust, elasticity will be more. Price level: If the product is very low-priced like a match box, the elasticity will be low whereas in case of relatively high priced products, the elasticity will be more. Proportion of income spent on the product: If the consumer is spending a very high proportion of income on the product, its elasticity is high whereas product on which consumer is spending less proportion of his income, the elasticity is low.


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