Determinants of Price Elasticity of Demand-The Good is a Necessity or a Luxury for the Consumers?

Price elasticity of demand is also affected by how the consumers view a good or service a necessity or luxury for themselves. Necessities tend to have inelastic demand and luxuries tend to have elastic demand. Education and health services (doctor visits), heating in the winter, gasoline for car owners are considered necessities for consumers and these items have inelastic demand since the case of price increases in these items gets small reactions from consumers to cut their quantity demanded. On the other hand, for the items that is considered as luxury for the consumers, a price increase gets a substantial response from the consumers’ demand. Please notice that whether a good or service is a necessity or luxury is determined by the tastes and preferences of the consumer.