Factors Affecting the Price Elasticity of Demand

Price Elasticity of demand depends upon various factors. Some of the important determinants of price elasticity of demand are as follows:

1. Nature of Commodity: Necessity goods like salt, kerosene oil, match boxes, textbooks, seasonal vegetables etc. have inelastic demand. Whereas, luxuries like air conditioners, costly furniture, fashionable garments, etc. have elastic demand.

2. Availability of Substitutes: Demand for those goods whose substitute are readily available, is relatively more elastic. Example tea and coffee. On the other hand, goods without close substitutes like Cigarettes, and liquor, are generally less elastic.   

3. Multiple Uses: Goods which can be put to multiple uses have elastic demand. Example electricity.

4. Postponement of Use: Demand for those goods, the consumption of which can be postponed, is elastic. Eg: Demand for residential houses.

5. Income Level of the buyers: The degree of elasticity also depends upon whether consumers of the goods are high-end consumers (rich) or low-end consumers (not so rich). For example: while demand for luxury cars by multi-billionaire is inelastic, demand for small cars by middle class is elastic.   

6. Habit of Consumers: Goods to which consumers get habitual or addicted have inelastic demand.   

7. Proportion of Income spent of commodity: Goods on which consumers spend a small proportion of their income, have inelastic demand. Example: toothpaste, boot polish, newspapers, needles etc. On the other hand, goods on which consumers spend a large proportion of their income, have elastic demand. Example: cloth, petrol, etc

8. Price Level: Low priced goods are generally inelastic and expensive goods have usually elastic demand.

9. Time period: Demand is inelastic in short term and elastic in long term as long period is long enough for a consumer to change his consumption habits.