What are the factors that determine elasticity of demand?


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Elasticity of demand is determined by the two following factors:

  • Availability of alternatives: If a product can be switched for an alternative, then demand decreases. If it cannot be substituted, it becomes indispensable.
  • How much of a necessity or luxury the product is: Luxury items experience higher elasticity in most cases, whereas demand for necessities is relatively stable.

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