Aliya Tlebaldy | 24.02.2024
Elasticities
What goods do you mostly find yourself purchasing? Are they elastic or inelastic goods? Well, let's start from the basics, what is elasticity?
Elasticity is a fundamental concept in economics that measures how responsive the quantity demanded or supplied of a good is to a change in price, income, or other relevant factors. Understanding elasticity is important for businesses, policymakers, and consumers as it develops valuable insights into market dynamics and helps predict the impact of various economic changes.
One of the most widely discussed forms of elasticity is the Price Elasticity of Demand (PED). PED measures the percentage change in quantity demanded in response to a one percent change in price. When the demand for a good is elastic meaning PED is more than one, consumers are highly responsive to changes in price. An example of an elastic good is soft drinks, clothing, electronics cars, and many more. If the price for those elastic goods changes, consumers are more likely to look for other alternatives that would appear more cheaply. For example, luxury goods often have elastic demand because consumers are more likely to cut back on these items when prices rise. Inelastic demand meaning PED is less than one results in less responsive consumer behavior. Medicine, gas, cigarettes, and electricity are considered to be inelastic goods. If the price for inelastic goods changes, consumers are still likely to purchase the good due consumers might be addicted to the good or there might not be a close substitute for the good in the market.
Income Elasticity of Demand YED measures how the quantity demanded changes in response to a change in income. It is mostly relevant to different goods as normal or inferior. Normal goods have a positive income elasticity (YED > 0), meaning that as income increases, the demand for these goods also increases. An example of a normal good can be a car meaning if the curtain brand of the car increases in price consumers will switch to a cheaper alternative. In contrast, inferior goods have a negative income elasticity (YED < 0), indicating that demand decreases as income rises. Ramen also known as an easily cooked meal is an example of an inferior good, consumers will tend to choose inferior goods when their income falls.
Elasticity is a very important tool in economic analysis, providing a range of understanding on how changes in price, income, or related factors impact consumer and producer behavior. The various forms of elasticity offer valuable insights into market dynamics and will help you with your market decisions.
Elasticity is a fundamental concept in economics that measures how responsive the quantity demanded or supplied of a good is to a change in price, income, or other relevant factors. Understanding elasticity is important for businesses, policymakers, and consumers as it develops valuable insights into market dynamics and helps predict the impact of various economic changes.
One of the most widely discussed forms of elasticity is the Price Elasticity of Demand (PED). PED measures the percentage change in quantity demanded in response to a one percent change in price. When the demand for a good is elastic meaning PED is more than one, consumers are highly responsive to changes in price. An example of an elastic good is soft drinks, clothing, electronics cars, and many more. If the price for those elastic goods changes, consumers are more likely to look for other alternatives that would appear more cheaply. For example, luxury goods often have elastic demand because consumers are more likely to cut back on these items when prices rise. Inelastic demand meaning PED is less than one results in less responsive consumer behavior. Medicine, gas, cigarettes, and electricity are considered to be inelastic goods. If the price for inelastic goods changes, consumers are still likely to purchase the good due consumers might be addicted to the good or there might not be a close substitute for the good in the market.
Income Elasticity of Demand YED measures how the quantity demanded changes in response to a change in income. It is mostly relevant to different goods as normal or inferior. Normal goods have a positive income elasticity (YED > 0), meaning that as income increases, the demand for these goods also increases. An example of a normal good can be a car meaning if the curtain brand of the car increases in price consumers will switch to a cheaper alternative. In contrast, inferior goods have a negative income elasticity (YED < 0), indicating that demand decreases as income rises. Ramen also known as an easily cooked meal is an example of an inferior good, consumers will tend to choose inferior goods when their income falls.
Elasticity is a very important tool in economic analysis, providing a range of understanding on how changes in price, income, or related factors impact consumer and producer behavior. The various forms of elasticity offer valuable insights into market dynamics and will help you with your market decisions.
