The factor affecting elasticity is the luxury versus necessity factor. A cruise is considered a luxury so its demand is considered more elastic when compared with a necessity.
Elasticity of demand measures how the quantity demanded of a good responds to changes in the price of the good.
Types of demand elasticity.
- Elastic demand: This means that demand is very sensitive to change in the price of a good. The coefficient of elasticity is greater than one.
- Inelastic demand: this means that demand is not very sensitive to changes in the price of the good. The coefficient of elasticity is less than one.
- Unit elastic demand: a change in price of the good leads to an equivalent change in the demand for the good. The coefficient of elasticity is equal to one.
Factors that affect elasticity of demand
- The number of substitutes the good has: the more substitutes the good has, the more elastic demand would be.
- The length of time: demand is less elastic in the short run when compared with the long run. This is because in the long run, consumers would have more time to search for suitable substitutes.
- Luxury versus necessity: a good that is considered a necessity is inelastic. While the demand for a luxury is considered elastic.
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