Demand Elasticity
Elastic Demand: A measure of the customers' sensitivity to a change in price.
In my own words: the degree to which someone will stop or start buying something because of a price change. (clothing)
Inelastic Demand: Not responsive, or only slightly responsive to a change in price.
In my own words: when someone will buy something no matter what the price is. (toilet paper)
Unitary Elastic Demand: When the percentage change in the quantity demanded of a good or service equals the percentage change in price
In my own words: when the change in price is the same as the change in demand. (maximizes resources)
Factors that influence demand elasticity:
In my own words: the degree to which someone will stop or start buying something because of a price change. (clothing)
Inelastic Demand: Not responsive, or only slightly responsive to a change in price.
In my own words: when someone will buy something no matter what the price is. (toilet paper)
Unitary Elastic Demand: When the percentage change in the quantity demanded of a good or service equals the percentage change in price
In my own words: when the change in price is the same as the change in demand. (maximizes resources)
Factors that influence demand elasticity:
- Availability of Substitutes- if there is not another version of something, customers will have to buy the one that is available. (Oculus Rift virtual reality video games)
- Price Relative to Income- if the product or service has a higher price than someone's weekly paycheck, they probably won't buy it. (diamond rings)
- Necessities vs. Luxuries- the more of a necessity the product or service is, the less elastic the demand will be. (insulin)
- Time Needed to Adjust to Price Change- when prices change, people can't always afford to change their lifestyle with them right away. (gas)
Supply Elasticity
Elastic Supply: A measure of the sensitivity of producers to a change in price.
In my own words: the degree to which a producer will add to or lessen their production rate because of a price change. (fashionable sandals)
Inelastic Supply: Not responsive, or only slightly responsive to a change in price.
In my own words: when a producer will make the same amount of something, no matter what the price is. (gas)
Unitary Elastic Supply: When the percentage change in the quantity supplied of a good or service is equal to the percentage change in price.
In my own words: when the change in price is the same as the change in supply. (maximizes resources)
Factors that influence supply elasticity:
In my own words: the degree to which a producer will add to or lessen their production rate because of a price change. (fashionable sandals)
Inelastic Supply: Not responsive, or only slightly responsive to a change in price.
In my own words: when a producer will make the same amount of something, no matter what the price is. (gas)
Unitary Elastic Supply: When the percentage change in the quantity supplied of a good or service is equal to the percentage change in price.
In my own words: when the change in price is the same as the change in supply. (maximizes resources)
Factors that influence supply elasticity:
- Availability of Inputs- the more readily available the inputs are, the more elastic the supply is. (coffee)
- Mobility of Inputs- the more easily the inputs can be transported, the more elastic the supply is. (new highway)
- Storage Capacity- the longer a product can be kept away in storage, the more elastic the supply is. (bananas)
- Time Needed to Adjust to Price Change- when prices change, producers cannot always change their production rate right away. (bananas)
Summary: There are three types of elasticity for supply and demand; elastic, inelastic, and unitary. Elastic means that it can change, while inelastic means that it will change very little or not at all. Unitary means that the change in price is equal to the change in supply or demand.