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Cryptocurrency: Determinants of Price Elasticity || how impact on

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Tariqul Islam
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Price Elasticity of Demand

We have discussed earlier about the Price elasticity of cryptocurrency specially mentioned the behavior of BTC. Price elasticity is very important to observe the fluctuations of a currency prices and transactions.

Today I will discuss about the Determinants of Price Elasticity of Demand from classical economics and their impact on cryptocurrecnies.

Price elasticity of demand is expressed as under formula:

It is measured by the following formula:

Determinants of Price Elasticity of Demand

Elasticity roughly means responsiveness. Elasticity of demand measures the degree of responsiveness of demand to a change in price of the commodity.
It is defined as:

The ratio of the percentage change in quantity demanded to the percentage change in price.

01. Substitute goods

A commodity will have elastic demand if there are good substitutes for it. This is because when price of a good rises, a consumer will not buy the good but purchase its substitute.

Cryptocurrencies has a lot good that can substitute for it. There are a lot of options as either you can buy different types of Cryptocurrencies or you may turn to other capital market goods.

02. Nature of commodity

All necessities like salt, rice etc. that have no substitutes/or less substitutes will have an inelastic demand. People have to purchase such commodities for their sustenance. Therefore, there will be some demand despite the changes in price.

Demand for luxury goods, on the other hand, will be elastic. If prices of such commodities rise even a little, consumers refrain to buy. At the same time a little lowering of price of such commodities attract a large number of consumers.

Still now BTC and other Cryptocurrencies demand is at rising position. We can change our decisions not to be inspired by necessity that's why it tends to be elastic. If prices of such commodities changes even a little, consumers refrain to buy.

03. Number of uses of commodity

The larger the number of uses to which a commodity can be put, the higher will be its elasticity. Therefore the demand of such goods will have elastic demand.

For example, milk can be used for various purposes such as for making curd, cake, sweets etc. When its price goes down, demand increases but a little rise in its price makes demand fall greatly.

BTC and other Cryptocurrencies are not having a large number of uses to which a commodity can be put that is done by USD or others. So it will impact to be less elastic.

04. Possibility of postponement of consumption

If there is a possibility of postponement of consumption of a commodity then demand will be elastic otherwise inelastic. Demand for certain goods can be postponed for some time such as computers, printers, scanners etc.

People may wait till they become cheaper. Therefore, their demand is elastic. But the demand for food or electricity cannot be postponed. As such their demand is inelastic.

It is possible of postpone the consumption of a Cryptocurrency, so people may wait till they turn to the suitable trends.

05. Percentage of income spent

The elasticity of demand is also influenced by the percentage of income spent on the purchase of a commodity. If the percentage is very less then the demand will be inelastic.

For instance, we spend a very less amount of our total money income on things like matches, pens, pencils etc. If prices of such commodities rise also, our demand is not reduced. Thus, demand of such goods is inelastic.

BTC and other cryptocurrencies exchanges are influenced highly by the changes of prices as the traders like to invest or transect cryptocurrencies as an investment tool most of them in a considerable volume in accordance to their income.

06. Fashion

Commodities, which are in fashion, will be inelastic. Fashion minded people don’t compromise with price. Even if price is high, some people will demand more just because goods are in fashion.

The traders of third world countries face a lot of external barriers to transect and liquidize the cryptocurrencies. THere are some misconceptions and mistrust upon cryptocurrencies that impact on the exchanges.

07. Change in taste

A habitual commodity, for which consumers have developed a taste will have inelastic demand. A chain smoker or a habitual betel nut chewer cannot leave his habit, in spite of rise in price. In such cases, therefore, demand is inelastic.

Most of the trades are occurred by the habitual traders in blockchain technologies. The persons who are used to deal with cryptocurrencies are enjoying the taste of the cryptocurrencies and they feel the inner strength and potentiality of the cryptocurrencies.

08. Price of the commodity

Very high priced or very low priced goods have low elasticity whereas moderately priced commodities are quite high-elastic. If a good is very expensive, demand will not increase much even if there is little fall in its price.

And demand will not increase even at very low prices, because people have already purchased their requirement at low prices.

This determinant of elasticity for the classical theory is not applicable in case of cryptocurrencies as the cryptocurrencies may be traded at fractional values.

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