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Factors Affecting Elasticity Of Demand

Elasticity of demand depends on many factors:

  1. Nature of Commodity: Elasticity or inelasticity of demand depends on the nature of the commodity, i.e., whether a commodity is a necessity, comfort, or luxury. Normally, the demand for necessaries like salt, rice, etc., is inelastic. On the other hand, the demand for comforts and luxuries is elastic.
  2. Availability of Substitutes: Elasticity of demand depends on the availability or non-availability of substitutes. In the case of commodities with substitutes, demand is elastic, but in the case of commodities with no substitutes, demand is inelastic.
  3. Variety of Uses: If a commodity can be used for several purposes, then it will have elastic demand, e.g., electricity. On the other hand, demand is inelastic for commodities which can be put to only one use.
  4. Postponement of Demand: If the consumption of a commodity can be postponed, then it will have elastic demand. On the contrary, if the demand for a commodity cannot be postponed, then demand is inelastic. The demand for rice or medicine cannot be postponed, while the demand for a cycle or umbrella can be postponed.
  5. Amount of Money Spent: Elasticity of demand depends on the amount of money spent on the commodity. If the consumer spends a smaller amount, e.g., on salt and matchboxes, even when the price goes up, demand will not fall. Therefore, demand is inelastic. In the case of clothing, where a consumer spends a large proportion of their income, an increase in price will reduce demand, making it elastic.
  6. Time: Elasticity of demand varies with time. Generally, demand is inelastic during a short period and elastic during a long period. Demand is inelastic during a short period because consumers do not have enough time to respond to price changes. Even if they are aware of the price change, they may not immediately switch to a new commodity, as they are accustomed to the old one.
  7. Range of Prices: Range of prices exerts an important influence on elasticity of demand. At a very high price, demand is inelastic because a slight fall in price will not induce people to buy more. Similarly, at a low price, demand is also inelastic because those who want to buy the commodity would have already bought it. Therefore, elasticity is low at both very high and very low prices.