Which of the following factor is not a determining factor of Price Elasticity of Demand?

Question

Accepted Answer

The correct option is 2: Uses of goods.

Price Elasticity of Demand (PED) measures how sensitive the quantity demanded of a good is to a change in its price. The core factors influencing this elasticity relate to how essential the good is, how easily a consumer can switch away from it, and how significant the purchase is to the consumer's budget. While the 'uses of goods' might inform a consumer's decision to purchase, the sheer number of uses a good has is not a direct factor that determines whether the demand will be elastic or inelastic in response to a price change. For example, water has countless uses, but its demand is highly inelastic (doesn't change much with price) because it is a necessity. Therefore, the *nature* or *type* of good matters (necessity vs. luxury), but not simply the quantity or variety of its uses.

The incorrect option is 1 (Availability of substitute): This is a major determining factor. If close substitutes are readily available, a small increase in the price of the good will cause consumers to easily switch to the cheaper substitute, making the demand highly elastic.

The incorrect option is 3 (Proportion of Income spent on goods): This is a crucial factor. If the price of a good constitutes a large proportion of a consumer's income (like a car or a house), a price change will have a noticeable impact on the consumer's budget, leading to higher elasticity. Conversely, cheap goods (like salt) have inelastic demand.

The incorrect option is 4 (Transport facility in Market): This is considered a factor, often related to the geographical extent of the market or the time element. Goods sold in a wider, more accessible market with good transport often face more competition and a greater number of substitutes (or wider choice), which generally contributes to higher elasticity of demand. Conversely, poor transport facilities can isolate a local market, limiting substitution and resulting in less elastic demand.