Factors Influencing Demands Price Elasticity

Price is the most important factor which determines the success of a product. The demands price elasticity means the consumers degree of responsiveness to a change in price of a product. The response of consumers to the changes in price will be in regard to the changes in quantity demanded. The change in demand is not necessarily always proportional to the change in price. It is to be noted that a small change in price can make large changes in demand or vice versa. The first case makes the demand elastic and the second case makes the demand inelastic.
On the basis of degree of response of demand with price, elasticity tends to have five situations. They are infinite elasticity, zero elasticity, elastic demand (relatively), inelastic demand (relatively) and unit elasticity. The change of price can affect the demand in a degree of responsiveness which is affected by various factors. Some of them are noted below.

The substitute availability is the first factor. In case of various substitute products is present in the market, the tendency of demand is to be elastic. On the other hand, in case of no substitutes present in the market for a product the demand has a tendency to be inelastic. The other factor which influences the demands price elasticity is the nature of the product. The demands elasticity is highly different for necessary item and luxury item. For example there is inelastic demand for the necessary items like rice, salt, sugar etc… But for the items like car, television, refrigerator etc. the demand tends to be elastic.

The uses of commodity are the next factor which influences the demands price elasticity. The products with numerous uses have elastic demand whereas products which have limited use have inelastic demand. It is a common fact the cheaper the product, higher the demand.

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