What determines whether the demand for a good is inelastic or elastic? Give 2-3 reasons. Give examples of each.

There are several determinants of demand, which affect how responsive consumers are to price changes. The most important ones are, number of substitutes, portion of the consumer budget, and time horizon of the purchase. If there are many close substitutes for the good, the demand will be elastic because if the price increase consumers will quickly purchase the other good. Conversely, if there are very few substitutes, then consumers will still purchase the good even if the price rises. If the good is large portion of the consumer budget, consumers will wait for sales, which means the demand is elastic. If the good's price is very inexpensive relative to their budget, consumers will still purchase the good, even if the price rises. Finally, if the good needs to be purchased right away because the consumer lacks time to look for better deals, the demand is inelastic. If the consumer can wait to purchase the good, it will generally have a more elastic demand.

Some examples of inelastic demand goods in the US are: insulin, eggs, wooden pencils, life saving drugs, baby formula and deodorant. Some examples of elastic demand goods are: exotic vacations, lobster dinners, washing machines, and designer clothing.