Elasticity of demand depends upon the number of factors. These are follows:
(1) Nature of Commodity:
A commodity may be a necessary, or a coif fort or a luxury. Necessaries, which satisfy the most urgent needs and are indispensable, have an inelastic demand, while comforts and luxuries, which do not satisfy urgent wants, have a elastic demand.
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Take for example, the case of salt. A change in price of salt will not have much effect on its quantity demanded. A change in the price of a necessary article cannot after its demand to a great extent. On the contrary, commodities which are items of luxury have a high elasticity of demand.
For instance, if there is an increase in price of motor cars in a country like India there will be a great reduction in the demand for this commodity because motor cars do not satisfy urgent needs. Their consumption can also be postponed. The more urgent want satisfied by a commodity, the more inelastic is the demand for it.
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(2) Availability of Substitutes:
When several commodities are regarded by consumers as more or less equally desirable for the satisfaction of a particular want, the demand for each of these goods will be elastic.
These goods are substitutes of one another. Take for example, a commodity like tea, coffee is its substitute. Thus an increase in the price of tea will cause many consumers to purchase coffee and the sales of tea will drop substantially.
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Therefore, the presence of substitutes makes the demand for a commodity highly elastic. When no satisfactory substitutes are available, price changes will have relatively little effect on the quantity demanded.
The demands for cigarettes are necessaries to those who are addicted to them. But the demand for any particular brand may be elastic, because the different brands are substitutes of one another.
If a commodity has perfect substitute its elasticity of demand would be perfect or infinite. Suppose the commodity is paddy produced by a former. Paddy produced by a farmer has perfect
substitutes in the paddy produced by other farmers. If a farmer tried to sell his paddy above the going price at any time, he would sell none at all. Therefore, the demand for his paddy is infinitely elastic.
(3) Alternative Uses:
Elasticity is likewise affected by the possibility of alternative uses of a commodity. If a commodity can be put to several uses, its demand would be elastic. If a commodity has only a few uses, its demand is likely to be inelastic.
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Let us take the example of electricity which is used for, several purposes like lighting, cooking and the like. As the electric charges come down, electricity would be put to less important uses. Hence demand for electricity tends to be elastic. So is the case of coal.
(4) Possibility of Postponing Consumption:
Demand for a commodity would be elastic if its consumption can be postponed. The demand for wrist-watches may be postponed if their prices go up but the demand for rice cannot be so postponed. Hence the demand for the former is considered as elastic, while in case of the latter demand is said to be inelastic.
(5) Proportion of Income Spent:
Elasticity of demand for a commodity depends upon the fraction of his income which a consumer generally spends on it. In other words, the position of a commodity in the buyer’s budget also influences its elasticity. The demand for soap, salt, matches, ink is highly inelastic because an average family spends only a small part of his total expenditure in a week on each of them. Therefore, expenditure on these items will not be reduced “if their prices go up a little.
(6) Durability of a commodity:
Elasticity of demand is also influenced by considerations of the durability of the product and time. When a particular commodity is durable and can be used for a number of years, the individuals who have purchased the commodity do not demand additional units of the same for a considerable period of time.
Hence, a higher or lower price for such durable goods will generally not affect the demand for them. Thus demand for durable goods is more elastic after a longer period of time than in the short-interval.
(7) Habits:
Habits also influenced the purchase of a commodity. Persons became accustomed to buying certain articles and do not consider the desirability of altering their pattern of consumption in the short period. Hence price changes may bring a little immediate response. Hence demand is inelastic.
(8) Price Range:
Elasticity of demand depends upon the price level of commodities. Commodities may have high or low price. According to Marshall, elasticity of demand is great for high-priced commodities. When the price declines from very high level people in the lower bracket income will demand more of it.
Therefore elasticity of demand becomes high for high prices. But modern economists are of opinion that at very high or low prices the demand is inelastic. If the price of a commodity like a diamond or a motor can increase or decrease the demand for them does not increase. The demand for goods those with low price like match box or pencil is inelastic. Because changes in their prices even do not influence their demand.