Factors Determining Elasticity of Demand

Several factors decide how elastic or inelastic the demand for a particular commodity turns out to be:

• Availability of substitutes. More close substitutes → higher elasticity (buyers can easily switch away when price rises).
• Nature of the commodity. Necessities tend to have inelastic demand; luxuries and comforts tend to have elastic demand.
• Proportion of income spent. Goods that take up a small share of the budget (salt, matchboxes) tend to have inelastic demand, since a price change barely affects the consumer's total spending.
• Number of uses. A commodity with many alternative uses (e.g., electricity, steel) tends to be more elastic, as a price rise can lead consumers to cut back on its less important uses first.
• Time period. Demand is generally more elastic in the long run than in the short run, since consumers need time to adjust habits and find substitutes.
• Postponability. If purchase of a good can be postponed without much loss, demand tends to be more elastic; urgent, immediate needs make demand inelastic. …