2.19 : Effect of Time Horizon and Other Factor on Elasticity of Demand

Elasticity is not static but evolves over time. As market conditions, consumer preferences, and external factors shift, so does the degree to which demand responds to price changes.

Some of the important factors affecting price elasticity are:

Time: Over time, as consumers adapt, demand generally becomes more elastic. For example, when fuel prices rise and environmental concerns grow, consumers may gradually switch from gasoline-powered cars to more energy-efficient or electric vehicles.

Influence of Habits and Loyalty: Habits and brand loyalty also affect price elasticity of demand.

Habits: Daily coffee drinkers might continue to visit their preferred coffee shop even if prices rise due to their established habits and the value they place on the experience.

Brand Loyalty: Consumers loyal to specific brands, such as Nike or Adidas, often continue purchasing these brands' products despite higher prices or similar cheaper options available in the market.

External Factors: Technological advances, social trends, and environmental considerations can also influence how elastic demand is over time. For instance, new technologies can make substitutes more available, increasing elasticity, while social trends can shift preferences towards more sustainable products, altering demand elasticity accordingly.