Financing and Marketing Management

Unit 11 - Elasticity

11.5. Determinants of Elasticity
Many factors influence elasticity, some of which include:

• Necessities versus Luxuries - It is harder to find substitutes for necessities so quantity demanded will change less.
• Availability of Close Substitutes - If there are close substitutes, buyers will move away from more expensive items and demand will be elastic.
• Definition of the Market - The more broadly we define an item, the more possible substitutes and the more elastic the demand.
• Time Horizon - The longer the time available, the easier to find substitutes and the more elastic the demand.
• Relative Size of Purchase - Purchases which are a very small portion of total expenditure tend to be more inelastic, because consumers are not worried about the extra expenditure.