General Question

Submarine's avatar

What is demand elasticty?

Asked by Submarine (3points) October 10th, 2009


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13 Answers

dpworkin's avatar

In what context? Is this a homework question? If it is, I will first ask you what you think it is, and then maybe we can work towards it.

lanahopple's avatar

This is from an article in a financial newspaper. Any idea what they are talking about?

dpworkin's avatar

I know what it means, I just don’t think I’m doing you any favors by handing you the answer.

Sarcasm's avatar

Urgh I’m not home right now, I have it well-defined in my notebook at home.

Demand Elasticity shows how much demand for an item (How much people want to buy it) based on the price.

Something that is “Inelastic” is something that, regardless of price, people will buy. Like gasoline. Even if it’s $4, you still need it to get to work. You’re not very willing to change your purchasing habits to say, bike to work.

Something that is “elastic” is something that, when it’s expensive, people won’t buy a lot of it. When it’s cheap, you’d buy a lot.

You’re welcome for the homework help

PandoraBoxx's avatar

There are fomulas to compare price and sales data. Say for example Nike wants to raise the price of its shoes. At what point will the price increase have a negative impact on how many pairs of shoes are sold. The point being, why would you charge $90 for a pair of shoes, when you could sell the same mumber of pairs for $97?

lanahopple's avatar

So I take it that luxury items are going to show a lot of elasticity in demand (depending on price) while necessities like food do not have that dependency.

SuperMouse's avatar

No offense @Submarine but Fluther really frowns on doing homework.

PandoraBoxx's avatar

Some food items are elastic as well.

gailcalled's avatar

If money is tight, the price for yachts will drop. When more money is available, yachts will become more expensive. Stretch<========>.

Sarcasm's avatar

it may just be the ADD-riddled 12-year-old in me, but that wiki article (as with the wiki article for so many things) is a pain.

arpinum's avatar

A good way to think about this is that elasticity measures the ability of consumers to easily switch to a substitute to satisfy their needs. Coors drinkers may have a high elasticity because they can easily switch to Budweiser if prices increase. Think of “Elastic“ity as “bendable”. The more you can bend, the more you can avoid paying higher prices.

More technically:
Demand elasticity describes the % increase (decrease) in sales volume from lowering (raising) prices by a certain percent. The ratio of the former to the later is the demand elasticity. A number greater than 1 is considered elastic and will result in higher revenues for lowering a price, while less than 1 is called inelastic and higher revenues can be achieved by raising pricing (assuming no competition, which almost never happens). 1 Signifies unit elasticity.

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