Explain the various ways in which changes in income and the prices of other goods affect the elasticity of demand for a particular good

Changes in income levels influence the elasticity of demand in that rise in income levels makes demand more inelastic. Increased wages ensure that people will not be disturbed by the price and thus the price rise will not have a significant effect on the goods demanded. On the other hand, a decrease in wages makes demand more flexible. This is because low income makes people more price sensitive. If there is a price change, people will start buying a lot less because of a drop in the amount of income.

The price of other similar goods influences elasticity such that the decreased price of a near alternative induces an increase in elasticity. Tea and coffee, for example, appear to be similar substitutes. If the price of tea is reduced, consumers will reduce their consumption of coffee and purchase tea. The increase in the price of near substitutes makes the elasticity of demand more inelastic. For example, if the price of tea increases, consumers can reduce the consumption of tea and purchase coffee.