Determinants of Elasticity of Demand
The factors that determines the price elasticity of demand for a commodity are known as the determinants of price elasticity of demand. They are as follows:-
I) Nature of Commodity .
The price elasticity of demand for a commodity is determined by its nature i.e. whether it is necessity, comfort or luxury . In case of necessity goods, it's price elasticity of demand is generally less elastic. In case of comfortable goods, like fan, fridge, etc. their price elasticity of demand is neither very elastic nor very inelastic i.e. moderate. Similarly, in case of luxury goods, it's price elasticity of demand is more elastic .
Il) Substitute Gloods :
In case of substitute goods , they have more elastic demand because the change in price of one commodity leads to immediate change in its quantity demand of it's substitute like teas coffee.
III) Goods Having Several Uses :
If a commodity has several uses, such goods have elastic demand . For example, electricity have multiple uses such as lighting , heating , cooking, etc .
IV) Joint demand:
Those goods which are jointly demanded such as car and diesel, pen and ink, bread & butter, etc are known as complementary goods. The elasticity of demand for one good depends upon the elasticity of demand of another goods .
V) Income of the Consumer:
When the income of the consumer is high, the elasticity of demand is less elastic because the change in price will not affect the quantity demand by a greater proportion.
VI) Postponement of the Consumption:
Those goods whose consumption can be postponed, its price elasticity of demand will be more elastic. On the other hand, those goods whose consumption cannot be postponed, their demand will be inelastic.
VII) Habits:
The consumption of a particular commodity or a particular brand like coffee, tea, cigarettee, etc in which people are habitutated to consume such goods, their demand will be inelastic .
VIII) Price Level :
When the price level is too high or too low, the demand for goods will be inelastic. But in middle range of prices, the demand will be elastic.
IX) Time Factor :
The elasticity of demand is more elastic long run (long time) than in short run ( short time) because consumer has enough time to make adjustment in his consumption scheme in long run ( long time).