Demand elasticities can be influenced by several factors. The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand:
Availability of substitutes. The elasticity is typically • higher the greater the number of available substitutes, as consumers can easily switch between different products.
Degree of necessity. Luxury or highly valued products • typically have a higher elasticity. Some products that are initially a luxury are habit forming and can become “necessities” to some consumers. Bread has a low elasticity as it is considered a necessity, as does tobacco because it is habit forming.
Proportion of the budget consumed by the item. • Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Time period considered. Elasticities tend to be greater • over the long run because consumers have more time to adjust their behaviour.
Whether the good or service is demanded as an input • into a final product or whether it is the final product. If the good or service is an input into a final product then the price elasticity for that good or service will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Each of these general factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.