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Determinants of price elasticity of demand

Availability of substitutes: If goods have many close substitutes, then they have elastic demand. And if a good has fewer substitutes, it has inelastic demand.



Goods like Coke v/s. Pepsi, ink pen v/s. ball pen, Maruthi Alto v/s. Hyundai Eon, etc. have elastic demand because if the prices of these goods rise, then the consumers will switch over to the next alternative, whereas goods having few substitutes like salt, petrol have less elastic (inelastic) demand, because even in case of any change of price, the consumers will continue to use same goods as there are no alternatives.

Position in consumers’ budget:

Goods which occupy a higher proportion of consumers’ budget or goods on which the consumers spend a major portion (like clothing, milk, provisions etc.) of their budget have more elastic demand compared to those goods on which the consumers spend only a small portion of their income (like salt, sugar etc.) This is because, when the price of goods which occupy a major portion of the consumers’ budget rises, it will impact the expenses of a consumer drastically when compared to the goods which occupy a small portion of the consumers’ budget.

Nature of commodity:

Luxurious goods like car, and TV are more elastic to changes in price while necessities of life like food, housing etc. are inelastic.

Number of uses of the commodity:

Goods which can be put to many uses are more elastic, while those goods which don’t have alternative uses are less elastic.



Milk can be used to drink, prepare ghee and sweets, prepare curds, etc.

Time period:

Goods for which consumers have a longer time period to adjust or modify their consumption habits have more elastic demand. On the other hand, goods for which consumers have lesser time period to adjust or modify their consumption habits have less elastic demand.



In response to a higher petrol price, one can, in the short run, make fewer trips by car. In the longer run, not only can one make fewer trips, but can also purchase a car with a smaller engine capacity when the time comes for replacing the existing one. Hence, one’s demand for petrol falls more when one has made long term adjustment to higher prices.


Consumer habits:

Goods which are not habitually used by the consumer have more elastic demand than those that are habitually used by the consumer.



Toothbrush, soaps, cigarettes have less elastic demand.


Goods, the use or purchase of which can be postponed, have more elastic demand while those goods which have to be purchased immediately have less elastic demand.



Purchase of car, TV can be postpone, but food or clothing cannot be postpone.

Tied demand:

Goods which are jointly demanded, like pen and refill, car and petrol etc. have less elastic demand. These are known as tied goods. Where as, goods which have independent demand, like milk, TV etc. have more elastic demand.


the durability of the goods also one of the important determinant of price elasticity. Consumers will buy more durable goods assuming the price of these goods may go up in the future which will increases the demand for the goods.

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