Factors Determining Price Elasticity of Demand for a Good

• The price elasticity of demand for a good depends on the nature of the good and the availability of close substitutes of the good.
• Consider, for example, necessities like food. Such goods are essential for life and the demands for such goods do not change much in response to changes in their prices. Demand for food does not change much even if food prices go up. On the other hand, the demand for luxuries can be very responsive to price changes. In general, demand for necessity is likely to be price inelastic while demand for a luxury good is likely to be price elastic.
• Though the demand for food is inelastic, the demands for specific food items are likely to be more elastic. For example, think of a particular variety of pulses. If the price of this variety of pulses goes up, people can shift to some other variety of pulses which is a close substitute. The demand for a good is likely to be elastic if close substitutes are easily available. On the other hand, if close substitutes are not available easily, the demand for a good is likely to be inelastic.
• Other things equal, if a good has more substitutes, its price elasticity of demand is larger.

Source: NCERT