Business Basics

Elasticity of demand

  • Created by Henry Stewart Talks
Published on September 30, 2025   3 min

A selection of talks on Finance, Accounting & Economics

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Elasticity of demand is a key economic concept showing how sensitive the quantity demanded of a product is to price changes. For example, if a bad season causes orange prices to rise, people may buy much less, or demand may stay steady. Elasticity quantifies this responsiveness to price and other factors. It is crucial for economists, businesses setting prices, policymakers imposing taxes, and anyone predicting market reactions. For instance, fuel prices can greatly affect consumption, while demand for necessities like bread changes little, regardless of price. Price elasticity of demand (PED) measures the percentage change in quantity demanded from a one percent change in price. With “elastic” demand, a small price rise causes a big drop in quantity bought—seen in luxury holidays and branded clothes, as consumers can easily cut back or delay purchases. Conversely, “inelastic” demand means price changes barely affect quantity bought; everyday essentials or addictive items like milk, bread, and cigarettes are still purchased regardless of price. Perfectly elastic and perfectly inelastic demand are theoretical extremes, shown by horizontal or vertical demand curves and indicating total responsiveness or none at all, respectively. What influences elasticity? Factors include the availability of substitutes, whether the good is a necessity or luxury,

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