Factors Determining Elasticity of Demand

Whether a commodity's demand turns out to be elastic or inelastic in practice depends on several factors, all part of the standard Maharashtra HSC (MSBSHSE) Std XII Economics syllabus:

• Availability of substitutes. The more close substitutes a commodity has, the MORE elastic its demand — a consumer can easily switch away if price rises (e.g., one brand of tea against another). A commodity with no close substitute (salt) has inelastic demand.
• Nature of the commodity — necessity, comfort or luxury. Necessities (food staples, basic medicine) tend to have inelastic demand, since they must be bought regardless of price; comforts and luxuries tend to have more elastic demand, since their purchase can be postponed or dropped.
• Number of uses of a commodity. A commodity with many alternative uses (electricity, steel) tends to have more elastic demand, since a price rise can cut some of its less-important uses first while more important uses continue; a commodity with a single use tends to be more inelastic.
• Proportion of income spent on the commodity. If only a tiny fraction of income goes on a commodity (a box of matches, salt), a price change barely affects the household budget, so demand tends to be inelastic; commodities taking a large share of income (a refrigerator, rent) tend to show more elastic demand.
• Postponability of consumption (durability/urgency of need). A commodity whose purchase can be deferred without much loss (a new phone) tends to have elastic demand; a commodity needed immediately and repeatedly (perishable food, urgent medicine) tends to be inelastic.
• Time period. Demand is generally MORE elastic in the long run than in the short run, since consumers need time to find substitutes, change habits, or adjust their consumption pattern to a price change; in the very short run, habits and existing stocks make demand comparatively inelastic. …