The factors affecting elasticity of demand are the following :

(i) Availability of Substitutes : The most significant determinant of price elasticity of demand for a commodity is the availability of its alternatives. The elasticity of demand for a commodity increases as much as it is close to the alternative. For example, coffee and tea can be considered as a close alternative to each, other, if the price of one of these goods rises, then the second commodity becomes relatively cheaper. Therefore, consumers buy cheaper and less expensive goods.

(ii) Nature of Commodity : The price elasticity of demand depends on the nature of a commodity. Commodities can be broadly divided on the basis of their nature as luxury, comforts and requirements. Luxury goods’ demand is more elastic than the demand for other types of goods because consumption of luxury goods can be postponed when their price rises. On the other hand, consumption of essential goods cannot be postponed and hence their demand is inelastic. Demand for durable goods is more elastic than that for non-durable goods, because when the price of the former increases, people either get the old one repaired instead of replacing it or buy a ‘second hand’ product.

(iii) Proportion of Income spent: Another factor affecting the elasticity of demand is the proportion of income which consumers spend on a particular commodity. If proportion of income spent on a commodity is very small, then its demand will be inelastic, and vice-versa. The classic examples of such commodities are salt, matches, books, toothpastes, etc., which claim a very small proportion of consumers’ income. Demand for these goods is generally inelastic because increase in the price of such goods does not substantially affect the consumer’s budget, and hence its demand.

(iv) Time Factor : The price elasticity of demand also depends on how much time consumers take to adjust to a new price. The more time it takes, the more elastic the demand will be. is. For, consumers are able to adjust their expenditure pattern to price changes over a period of time. For example, if price of TV sets is decreased, demand will not immediately increase unless people possess excess purchasing power. But over time, people may be able to adjust their expenditure pattern so that they can buy a TV set at the new lower price.

(v) Range of Alternative Uses of a Commodity : The wider the range of alternative uses of a product, the higher the elasticity of its demand. Decreases in the price of a multi-use commodity encourages the extension of their use. Therefore, the demand : for such a commodity generally increases more than the proportionate decrease in its price. For instance, milk can be taken as it is, it can be converted into curd, cheese, ghee and butter milk. The demand for milk, will therefore be highly elastic. Similarly, electricity can be used for lighting, cooking, heating and for industrial purposes, therefore, demand for electricity is elastic, especially, for decrease in price.

(vi) The Proportion of Market Supplied : The elasticity of market demand depends also on the proportion of the market supplied at the ruling price. If less than half of the market is supplied, elasticity of demand will be higher and if more than half of the market is supplied, elasticity will be lower. That is, towards the upper end, demand curve is more elastic than towards the lower end.

(vii) Direction of Change in Price : The direction of change in price also determines the elasticity. Between any two finite points on the demand curve, elasticity is higher for the fall in price and vice-versa.