The price elasticity of demand depends upon the following factors:
(i) Nature of the Commodity: The impact of change in price of a commodity on its demand depends upon the type of need fulfilled by the commodity. Change in the price of commodities like flour, salt, etc. will have a very small impact on quantity demanded because these are necessities. Thus, their demand is inelastic. On the other hand, there will'be a greater impact of change in price on demand for luxuries. That is,their demand is elastic.
(ii) Availability of Substitutes:The demand for a commodity is relatively elastic if there are close substitutes available for it. Commodities like tea, fountain pen, ghee, etc. have relatively elastic demand as they have substitutes like coffee, ball-point pen, oil, etc. respectively. For instance, people will substitute ball-point pen for fountain pen if the price for ball-point pen falls. The demand for a commodity is relatively inelastic if there are no substitutes available for it. Commodities like salt, water, etc. have relatively inelastic demand. The demand for salt will not get affected due to a change in its price.
(iii) Commodities with Several Uses:Those commodities which can be used for various purposes have relatively elastic demand. For example, if electricity becomes costly then it will no longer be used for heating, making food and ironing. It will be used only for lighting. A change in price will affect the total demand a lot. On the contrary, the commodities which have minimum or single use have inelastic demand.
(iv) Postponement of Consumption:The commodities whose consumption can be postponed to future have elastic demand. For example, when the current price of computers increases,the people will postpone the demand for the same.As a result, its current demand will decrease a lot.
(v) Habits of Consumer: The commodities to which a consumer is habitual have inelastic demand. For instance, if price of cigarettes increases then there will be no specific effect on its demand becaus it is a commodity of habit.
(vi) Price Ranges:Very high priced and very low priced commodities have inelastic demand. If price of a truck increases from Rs.6 lakh to Rs.6 lakh 10 thousand then there will be no specific effect on its demand. A person who can arrange Rs.6 lakh for buying a truck, can also collect arrange Rs.1.0 thousand. Similarly.an increase in the price of match box from 25 paisa to 30 paisa will not affect its demand very much.