Economics All Around The World: Determinants of Elasticity

Luxuries and Necessities

Luxuries are products and services that are essential in our daily life which has higher elastic demand.
For example, branded handbags. It is not something we need but WANT to satisfy ourselves.

Therefore, if the price of luxuries increase, the quantity of demand will decrease. Because people have a choice to choose if they want to purchase and have it or not.

Elastic Graph

Necessities are things and goods that we can't live without. Such as; food, water, electricity and many more.
Necessities have an inelastic demand. If the price increases, the quantity demand will not be affected much. This is because people NEED these goods to live. They do not have a choice to not purchase it.

Inelastic Graph

Availability of Substitutes

Different goods that almost have the same function or can satisfy the needs of customers, can be used to replace the other. The more substitutes the product has, the more elastic the demand. People can switch product easily because the other replacement product can fulfill the old product's function.

Example

If the price for Coke increase, the demand for Coke will decrease and the demand for Pepsi will increase. Substitutes are important because customers can make price and quality comparison to make sure their purchase is worth it.