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There are three main factors that cause the demand for a good to be elastic:
- If there are substitutes available, the demand will be elastic. This is because consumers may stop buying the good when its price goes up and will instead buy the substitute good. So, for example, if the price of apples goes up, people might buy oranges instead and the quantity demanded of apples goes down.
- If the product is relatively expensive demand for it will be elastic. If a $1 box of salt doubles in price, people will still tend to buy it because $2 is not that much money. If a $25,000 car doubles in price, people will not buy it nearly as much because $50,000 is a lot of money.
- Demand is more elastic for everything over a long term than it is over a short period of time.
Certain types of products are generally more elastic than others. For instance, if a product is nonessential it will obviously be far more elastic. For instance, raising the price on a pack of baseball cards is probably going to decrease sales more than raising the price on a lifesaving medicine, especially if there are no alternatives. This is an extreme example, but it applies to other areas. Gasoline, while certainly responsive to price, is relatively inelastic. People still need to get to work even it is going to cost them.
Additionally, some products that are not essential are perceived as being that way. Cigarettes are a perfect example of this. Smokers will generally continue to purchase this product when taxes go up or the price increases. That is because the addictive nature of the product makes it appear as if it is essential. Any product that is either essential or for some reason a staple of daily life is going to be less elastic, as long as competitors are raising prices at a similar rate. People will always buy toilet paper, milk, eggs, etc, even with small price increases. This has been shown many times with the price of eggs, for example.
Other goods, that are more optional, are much more sensitive to change.
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