Q&A - What determines price elasticity of demand?

There are several factors that affect the price elasticity of demand for a product:

The number of close substitutes for a good
The more close substitutes in the market, the more elastic is demand because consumers can easily switch their demand if the price of one product changes relative to others.

The strength of the brand loyalty to a product
Products which have strong consumer brand loyalty often have relartively inelastic demand - consumers are prepared to accept price increases because of other attractive features of the brand which mean they will stay loyal. Conversely, a product with little or no brand loyalty will find demand is elastic - consumers are prepared to quickly switch to an alternative if the price increases

The cost of switching between products
There may be significant costs involved in switching between products. In this case, demand tends to be relatively inelastic. For example, mobile phone service providers may insist on 12 or 18-month contracts being taken out. Some gym memberships require a 3-6 month notice period for cancellation.

The degree of necessity or whether the good is a luxury
Goods and services deemed by consumers to be necessities (e.g. bread, milk) tend to have an inelastic demand whereas luxuries tend to have a more elastic demand.

The percentage of a consumer’s income allocated to spending on the good
Goods and services that take up a high proportion of a household’s income will tend to have a more elastic demand than products where large price changes makes little or no difference to someone’s ability to purchase the product.

The time period allowed following a price change
Demand tends to be more price elastic, the longer that we allow consumers to respond to a price change.

Whether the good is subject to habitual consumption
When this occurs, the consumer becomes less sensitive to the price of the good in question because their default position is to buy the same products at regular intervals.

Peak and off-peak demand
Demand tends to be price inelastic at peak times and more elastic at off-peak times.

The breadth of definition of a good or service
If a good is broadly defined, i.e. the demand for petrol or meat, demand is often inelastic. But specific brands of petrol or beef are likely to be more elastic following a price change.