Explain the factors influencing the elasticity of demand.

Answer: Elasticity of demand is the degree of responsiveness of quantity demanded to a change in price. It is influenced by the following factors:

1. Nature of the commodity: Demand for necessities (salt, food grains) is relatively inelastic; demand for comforts is relatively elastic and for luxuries highly elastic.
2. Availability of substitutes: Goods with many close substitutes (tea and coffee, different soaps) have elastic demand; goods with no close substitutes have inelastic demand.
3. Number of uses: A commodity with many uses (electricity, milk) has elastic demand; one with a single use has inelastic demand.
4. Proportion of income spent: Goods on which a very small part of income is spent (matchbox, salt) have inelastic demand; goods taking a large share of income have elastic demand.
5. Habits: Goods consumed out of habit or addiction (tea, cigarettes) have inelastic demand.
6. Durability: Demand for durable goods is relatively elastic; demand for perishable goods is relatively inelastic.
7. Possibility of postponement: If consumption can be postponed (e.g. buying a car), demand is elastic; urgent needs such as medicines have inelastic demand.
8. Price range: Very costly and very cheap goods tend to have inelastic demand; goods in the middle price range have elastic demand.
9. Time period: Demand is more elastic in the long run, as consumers can adjust habits and find substitutes.
10. Income level: Demand of the rich is less elastic than that of the poor.
11. Complementary goods: Goods used jointly (car and petrol) tend to have relatively inelastic demand.

Thus elasticity of demand varies from commodity to commodity and person to person depending on these factors.