Given below are the factors which determine the price elasticity of demand:
(i) Nature of Commodity : Ordinarily, necessities like salt, kerosene oil, matchboxes, textbooks, seasonal vegetables, etc. have less than unitary elastic (inelastic) demand. Luxuries, like air-conditioner, costly furniture, fashionable garments, etc. have greater than elastic demand. The reason being that any change in their prices has a great effect on their demand. Comforts like milk, transistor, cooler, fans, etc. have neither very elastic nor very inelastic demand. Jointly demanded goods, like car and petrol, pen and ink, camera and film, etc. have ordinarily inelastic demand.
(ii) Availability of Substitutes : Demand for those commodities which have a substitute (for example, tea has its substitute in coffee, orange juice has its substitute in lime juice) are relatively more elastic.
(iii) Different Uses of Commodity : Commodities that can be put to a variety of uses have elastic demand. For instance, electricity has multiple uses. It is used for lighting, room-heating, air-conditioning, cooking, etc. If the tariffs of electricity increase, its use will be restricted to important purposes like lighting. It will be withdrawn from less important uses. On the other hand, if a commodity such as paper has only a few uses, its demand is likely to be inelastic.
(iv) Income of Consumer : People whose incomes are very high or very low, their demand will ordinarily be inelastic. Because rise or fall in price will have little effect on their demand. Conversely, middle income groups will have elastic demand.
(v) Habit of Consumer : Goods to which a person becomes accustomed or habitual will have inelastic demand like cigareette, coffee, tobacco, etc. It is so, because a person cannot do without them.
