Some price changes make us flinch, while others barely register. If the price of coffee doubles overnight, you might switch to tea. But if the price of life-saving medication doubles, you'll likely find a way to pay for it. This sensitivity to price is what economists call elasticity.

But what makes our demand for one product highly sensitive, or elastic, while our demand for another is unshakable, or inelastic? It boils down to a few key factors that shape our buying decisions.

The most important factor is the number of available substitutes. If a product has many close alternatives, its demand will be very elastic. Consumers have choices. If one brand of orange juice raises its price, you can easily grab a different brand, or even switch to apple juice.

On the other hand, a good with few or no close substitutes will have inelastic demand. Think about gasoline. For most car owners, there isn't an immediate alternative for fueling their vehicle. Even if the price jumps, they still need to get to work, so they'll pay it. The demand is less responsive because the options are limited.

Is the good a must-have or a nice-to-have? Necessities tend to have inelastic demand. These are things you can't easily go without, like electricity, basic groceries, or housing. A price increase won't drastically reduce the quantity people demand because these goods are essential.

Luxury goods, however, have elastic demand. A luxury is something desirable but not essential for survival. Examples include designer clothes, exotic vacations, or high-end sports cars. If the price of a luxury item increases, consumers can easily postpone the purchase or simply do without it. The demand is highly sensitive to price changes.

The proportion of your income that you spend on a good also affects its elasticity. Items that make up a very small part of your budget tend to have inelastic demand. For example, consider a box of matches. If the price doubles from $1 to $2, you'd likely still buy it without a second thought. The change is too small to impact your overall spending.

In contrast, goods that take up a large share of your income have more elastic demand. A 10% increase in your rent or a car payment is a significant financial event. Such a price hike would likely cause you to re-evaluate your living situation or transportation choices, making your demand for that item much more responsive to the price change.

Finally, the amount of time consumers have to adjust to a price change plays a crucial role. In the short run, demand is often inelastic. If the price of gasoline spikes tomorrow, you probably can't change your habits immediately. You still need to drive your current car to work.

Over a longer period, however, demand becomes more elastic. Given a few years of high gas prices, you have time to adapt. You might buy a more fuel-efficient car, move closer to your job, or switch to public transportation. Time gives consumers the ability to find substitutes and change their behavior, making them much more responsive to price.

These four factors help explain the complex ways we respond to the world of prices around us. By understanding them, we can better predict how and why consumers react to shifts in the market.