Which factor causes demand to become more elastic?

Demand becomes more elastic when consumers are more responsive to price changes. One key factor influencing this elasticity is the proportion of income that consumers spend on a good. When a high proportion of income is spent on a particular good, consumers are likely to be more sensitive to changes in its price. This is because significant expenditures make price changes more impactful on their overall budget, leading them to consider alternatives or substitutes more readily.

For instance, if the price of a luxury item, which constitutes a large part of a consumer's budget, rises, they may seek cheaper alternatives or forego the purchase entirely, reflecting increased elasticity. In contrast, if the good represents a smaller fraction of income, such as basic necessities, a price increase might not deter consumption as the impact on the overall budget is minimal.

Thus, the high proportion of income spent on the good leads to a greater elasticity of demand, making consumers more likely to change their purchasing habits in response to price fluctuations.