Determinants or factors affecting the elasticity of demand
- Availability of close substitute goods:
Substitute goods like Pepsi and coke, tea and coffee, etc have more elastic demand than other goods. Example sugar and salt do not have their close substitute so, their price elasticity is less.
- Luxurious goods
The elasticity of demand depends on the nature of a commodity. Luxurious goods are more elastic than other goods. Example; the desire for sofa, car, TV, etc can be postponed when their price rises or when income is low so their price elasticity is high.
- Necessary goods
The consumption of necessary goods cannot be postponed. Example, foods clothes, medicine, etc are less elastic because they cannot be substituted.
- Consumers’ habit
The habit of the consumer varies according to the consumer. The demand for habituated goods is less elastic. For example, some of the consumers have the habit of smoking. But, the rise in the price of cigarette does not affect the demand much.
- Range of alternative uses of the commodity
When the price of multipurpose goods decreases, the consumer increases its usage. Example the consumption of electricity can be used for several usages like cooking, heating, lighting, etc. The price elasticity of demand for electricity is more elastic at low cost and less elastic at a high cost