Followings are the main determinants of elasticity of demand:
Determinants
1. Nature of commodity:
Commodities are classified as necessities, luxuries and comforts.
(i) A necessity that has no close substitute (salt, newspaper, polish etc.) will have an inelastic demand because its consumptions cannot be postponed.
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Moreover, consumers purchase almost a fixed amount of a necessity per unit °f time whether the price” is somewhat higher or lower.
(ii) Demand of luxuries is relatively more elastic because consumption of luxuries (TV. sets, decoration items, etc.) can be dispensed with or postponed when their prices rise.
(iii) Comforts have more elastic demand than necessities and less elastic in comparison to luxuries.
Commodities arc also classified as durable and perishable. Demand for durable goods is more elastic than perishable goods (non-durable) because when the price of former increases, people either get the old one repaired or buy a second hand.
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2. Range of substitutes:
A commodity has elastic demand if there are close substitutes of it. A small rise in the price of a commodity having close substitute will force the buyers to reduce the consumption of the commodity in favour of substitutes.
A lower price will attract the buyers’ of the other substitutes to purchase the commodity. If no substitutes are available, demand for goods tends to be inelastic. Demand for salt is highly inelastic because it has no substitute.
3. Number of uses of a commodity:
Larger the number of uses of a commodity, the higher is its elasticity of demand. The demand in each single use of such commodities may be inelastic, but the demand in all uses taken together is elastic.
For example, gram is used for money purposes. If its price rises, it will not be used in less important uses and the quantity demanded will fall appreciably.
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Contrary to this, the bangles for women have no other use and, therefore, their demand is relatively inelastic.
4. Possibility of postponement of purchase:
If the use or purchase of a commodity can be postponed for some times, then the demand of such commodity will be elastic.
For example, if cement, bricks, wood and other building materials become costlier, people will postpone the construction of houses. Therefore, price elasticity of building materials will be high.
5. Importance of the commodity in consumers budget:
The demand for such goods is inelastic on which a small portion of income is spent, the j items like toothpaste, shoe polish, electric bulbs have inelastic demand as we spend a small portion of our income on these items.
If the prices of these items rise, the consumer budget is not affected much. On the other hand clothes and durable items take away a large portion of the income. Therefore, the demand for such commodities is elastic.
6. Range of prices:
At a very high or very low range of prices, demand tends to be inelastic Demand for high priced commodities come from only the rich people who give little importance to price.
A change in the price of high-priced commodities will not generally affect the demand of rich consumers.
On the other hand low priced commodities are either necessities or a small part of income is spent an them. Therefore, their demand is inelastic.
7. Income level:
People with high incomes are less affected by price changes than people with low incomes. A rich man will not curtail his consumption of vegetables, milk, fruits even if their prices rise significantly and he will continue to purchase the same amount as before.
But a poor man cannot do so. Thus, the distribution of national income has an important bearing on the elasticity of demand
8. Time:
In the short-run the demand is inelastic while in the long-run demand is elastic. The reason is that in the long-run consumer can change their habits and consumption pattern.
9. Joint demand:
Elasticity of demand for a commodity is also influenced by the elasticity of its jointly demanded commodities.
If the demand for pen is inelastic then the demand for ink will be inelastic. Generally, the elasticity of jointly demanded goods is inelastic.