AP MicroeconomicsElasticity
Determinants of Price Elasticity of Demand
The determinants of price elasticity of demand are the factors that make demand more or less responsive to price: substitutes, necessity, budget share, and time horizon.
Demand is more elastic (more price-responsive) when close substitutes are available, when the good is a luxury rather than a necessity, when it takes up a larger share of the buyer's budget, and when buyers have more time to adjust. It is more inelastic in the opposite cases—few substitutes, necessities, tiny budget share, and the short run. A common AP error is confusing these demand determinants with the determinants that merely shift the demand curve.