The different factors that influence price elasticity of demand

Price elasticity of demand refers to the degree of change of quantity consumed of a particular commodity in reaction to the change in its price (Tribe, 2004). This concept is a determinant of various factors in relation to the extent of change in demand. The factors influencing the price elasticity of demand determine whether the change is elastic, inelastic or unitary (Mankiw, 2009). Elastic demand exists where the price change will result to a very significant change in demand compared to the price. Conversely, inelastic demand is said to be where the change in demand for the particular commodity is less in proportion than the initial price change. A proportion reaction by demand change to the price is referred to as unitary elasticity of demand (Mankiw, 2009).

The different factors that influence price elasticity of demand include:

Availability of Substitutes

Here, commodities which are easily substituted have a higher probability of elastic demand compared with those whose substitutes are not readily available (Bagad, 2008). Increase in price will lead to massive consumption of the substitute while reduction will attract the consumers of the substitute.

Time Available to Purchase Commodity

Where there is limited time for the purchase of a commodity, its response to the change in price will be less compared to where time for purchasing is available (Bagad, 2008). Thus, inelastic demand for commodities needed urgently since there is no much time to deliberate on the change in utilization by the consumer.

Nature of the Commodity

This includes qualities such as durability or addictiveness of the commodity. For instance in the case of addictiveness, addictive goods exhibit an inelastic demand. This is because increase or decrease in price will have very minimal reaction on the quantity consumed since the consumers cannot do without them (Tribe, 2004).

Proportion of Income Spent on Commodity

The price elasticity is less, inelastic where a small part of the consumers’ income is channeled to the commodity. However, where the proportion is large, the change in demand is much more significant to the change in prices, thus, elastic demand.

The determinants also influence purchase of the commodities by the consumers. This is because they will lead to either an increase, decrease or maintenance of the consumption levels depending on the effect it they have on their finances. For instance, increase in price of a commodity with a readily available substitute will lead to the consumer purchasing the substitute rather than the products they are used to. This is experienced in a larger proportion than the actual change in price.

It is clear that microeconomics focuses on small economic units and individuals rather than firms and national income (Arnold, 2008). This brings to light its relationship with price elasticity demand. Price elasticity is the response of individuals and manageable groups to price changes by small institutions. It deals directly with consumers and the suppliers without third parties which is the concept of microeconomics.

Various goods directly relate to the price elasticity of demand and exhibit varying responses according to their nature. For instance, coffee is a good with readily available substitutes such as tea. The increase in price of coffee would result to an immediate change of consumption to tea. This shows its highly elastic demand. This will however not be the reaction where the amount spent on it is a very insignificant proportion of the consumer’s total income because; he/she will not realize the difference. Similarly, to some people, it is addictive and used as a stimulant, thus its price adjustment will not cause much change in consumption levels, thus inelastic commodity. In decision making regarding prices, managers should be aware of what type of consumers of each commodity they are dealing with.


Arnold, R. (2008). Microeconomics. Mason, OH: South-Western Cengage Learning.

Bagad, V. (2008). Managerial Economics and Financial Analysis. Technical Publications.

Mankiw, G. (2009). Principles of Economics. Mason, OH: South-Western Cengage Learning

Tribe, J. (2004). The Economics of Recreation, Leisure & Tourism. Butterworth-Heinemann.

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