List determinants of elasticity, and explain each determinant in detail using examples.

Determinants of Elasticity:

1. Nature of goods: Elasticity can vary with the type of good. When the good is a necessary good, it will be relatively inelastic in nature, on the other hand if the good is a normal good with wide amount of choices, the demand of such goods will be relatively more elastic in nature.

2. Availability of substitutes: The availability of substitutes vary the elasticity of demand. When there are greater availability of substitutes, the consumers have wide range of choices to switch to, in such cases, the demand of the good is highly elastic. Such type of goods can be seen in case of monopolistic or oligopoly form of market. Whereas when there is lesser availability of substitutes or no substitutes, the demand tends to be inelastic in nature. Such type of good is seen in monopoly market.

3. Time period: Demand of a good is elastic in the long term and inelastic in the short term. This is because, in the short term the consumers are not able to fully adjust their consumption decisions as per the change in price levels, but in the long run the consumers can change their tastes and preferences and purchases, as per the price conditions. Also in the long run the taste and preferences of consumers also tend to change.

4. The proportion of product's cost in one's budget: If a product is such that it constitutes very small proportion in the consumer's budget, then in such a case, the consumer will tend to be indifferent to the price changes. For Example : salt. If on the other hand, if the cost of the product is such that, it constitutes a very significant portion of consumer's budget, then the demand of the good will tend to be highly elastic in nature. For example: Gold? diamond jewellery, expensive paintings etc.