Elasticity of demand is a measure of sensitiveness of demand of a commodity or service to the change in other variables such as price, income, availability of alternatives etc. In simple words, elasticity of demand can be defined as the percentage change in the demand of a product in relation to percentage change in other economic factors. Demand elasticity is influenced by various factors such as income, price, people's habit, price of close substitutes, nature of the product etc. In this post we are going to discuss about the main determinants of elasticity of demand.
Factors Affecting Elasticity Of Demand
Elasticity of demand is affected by the following factors:
1. Nature Of Product
Nature of commodity is one of the most important determinants of elasticity of demand. Products are classified into various types such as necessity goods, specialty goods, shopping goods, unsought goods etc. The rise or fall in the price of necessary goods like food items and life saving drugs does not affect the demand. Therefore, demand for such commodities is inelastic. On other hand, in case of luxury items the demand is highly elastic because small change in price leads to more fluctuation in the quantity of demand.
2. Change In Income
Consumer's income also influence the demand elasticity. Demand for high quality product increases when the income increases. In this condition, demand of inferior items decreases. Conversely, when buyer's income falls then demand of better quality products declines.
3. Habitual Necessities
Habit forming goods such as cigarette, alcohol etc. have inelastic demand. It means consumer do not stop buying these items even the price of such products rises.
4. Availability Of Substitutes/Alternatives
Demand elasticity also depends on the available close substitutes in the market. If there are other alternatives available for the products then elasticity of that product is high. It means if the price of such commodity increases then consumers stop buying those goods and shift to another brand.
5. Urgency Factor
Urgency is another factor that affects the elasticity of demand. Products with no urgent demand like furniture, electronic items etc. have elastic demand because customers can postponed the purchase date of such products. On the contrary, commodities like foods, drinking water, medicines etc. have inelastic demand because they are essential goods.
Also Read
Importance of elasticity of demand
Concept of needs, wants, drive and demand
Concept and methods of demand creation
6. Number Of Users Of Good
Products having several uses have elastic demand and vice versa.
7. Number Of Buyers
Number of buyers also influence the demand elasticity. If the number of customers increases then the demand will be high. But if the number of buyers declines then demand for the commodity also decreases.
8. Income Level Of Consumers
High income group are not affected by the change in price level. But low income group people are highly influenced by a small change in the price of the product or service.
