Some of the major factors by which the elasticity as demand for any commodity is determined or influenced are as follows:
Elasticity of demand for any commodity is determined or influenced by a number of factors which are discussed as under.
The elasticity of demand for any commodity depends upon the category to which it belongs, i.e., whether it is a necessity, comfort, or luxury. The demand for necessaries of life or conventional necessaries is generally less elastic.
For example, the demand for necessaries like food, salt, matches, etc. does not change much with the rise or fall in their prices. Similar is the case with commodities which are required at the time of marriage, death ceremonies, etc.
The demand for necessaries of efficiency (such as milk, eggs, butter, etc.), and for comforts is moderately elastic because with the rise or fall in their prices, the demand for them decreases or increases moderately. On the other hand, the demand for luxuries is more elastic because with a small change in their prices there is a large change in their demand.
But the demand for prestige goods, like jewels, rare coins, rare stamps, paintings by Tagore or Picasso, etc. is inelastic because they possess unique utility for the buyers who are prepared to buy them at all costs.
Commodities having substitutes have more elastic demand because with the change in the price of one commodity, the demand for its substitute is immediately affected. For example, if the price of coffee rises, the demand for coffee will decrease and that for tea will increase, and vice versa. But the demand for commodities having no good substitutes is inelastic.
The demand for a commodity having composite demand or variety of uses is more elastic. Such commodities are coal, milk, steel, electricity, etc. For example, coal is used for cooking and heating, for power generation, in factories, in locomotives, etc. If there is a slight fall in the price of coal, its demand will increase from all quarters. On the other hand, a rise in its price will bring a considerable decrease in demand in less important uses (domestic) and in more important uses efforts will also be made to economise its use, as in railways and factories. Thus the overall effect will be a reduction in demand. A commodity which cannot be put to more than one use has less elastic demand.
There are certain commodities which are jointly demanded, such as car and petrol, pen and ink, bread and jam, etc. The elasticity of demand of the second commodity depends upon the elasticity of demand of the major commodity. If the demand for cars is less elastic, the demand for petrol will also be less elastic. On the other hand, if the demand for, say, bread is elastic, the demand for jam will also be elastic.
Commodities whose consumption can be deferred have an elastic demand. This is the case with durable consumer goods, like cloth, bicycle, fan, etc. If the price of any of these articles rises, people will postpone their consumption. As a result, their demand will decrease, and vice versa.
People who are habituated to the consumption of a particular commodity, like coffee, tea or cigarette of a particular brand, the demand for it will be inelastic. We find that the prices of coffee, tea and cigarettes increase almost every year but there has been little effect on their demand because people are in the habit of consuming them.
The elasticity of demand also depends on the income group to which a person belongs. Persons who belong to the higher income group, their demand for commodities is less elastic. It is immaterial to a rich man whether the price of a commodity, has fallen or risen, and hence his demand for the commodity will be unaffected. On the other hand, the demand of persons in lower income groups is generally elastic. A rise or fall in the prices of commodities will reduce or increase the demand on their part. But this does not apply in the case of necessities, the demand for which on the part of the poor is less elastic.
If the consumer spends a small proportion of his income on a commodity at a time, the demand for that commodity is less elastic because he does not bother much about this small expenditure. Such commodities are shoe polish, pen, pencil, thread, needle, etc. But commodities which entail a large proportion of the income of the consumer, the demand for them is elastic, such as bicycle, watch, etc.
The level of prices also influences the elasticity of demand for commodities. When the price level is high, the demand for commodities is elastic, and when the price level is low, the demand is less elastic. As elaborated by Marshall, “Elasticity of demand is great at high price and great or at least considerable for medium prices, but it declines as the price falls, and gradually fades away if the fall goes so fast that satiety level is reached.”
Time factor plays an important role in influencing the elasticity of demand for commodities. The shorter the time in which the consumer buys a commodity, the lesser will be the elasticity of demand for that product. On the other hand, the longer the time which the consumer takes in buying a commodity, the higher will be the elasticity of demand for that product.
Professor Stigler mentions three possible reasons for the long-period elasticity being higher than the short-period elasticity. In the long run, the consumer has a better knowledge of the price changes, takes time to readjust his budget, and might change his consumption pattern due to possible technological changes.