Elasticity is an economic concept that's used to measure the change in the aggregate quantity demanded for a good or service in relation to price movements of that good or service. A product is considered to be elastic if the quantity demand of the product changes drastically when its price increases or decreases. Conversely, a product is considered to be inelastic if the quantity demand of the product changes very little when its price fluctuates.
For example, insulin is a product that is highly inelastic. For diabetics who need insulin, the demand is so great that price increases have very little effect on the quantity demanded. Price decreases also do not affect the quantity demanded; most of those who need insulin aren't holding out for a lower price and are already making purchases.
On the other side of the equation are highly elastic products. Bouncy balls, for example, are highly elastic in that they aren't a necessary good, and consumers will only decide to make a purchase if the price is low. Therefore, if the price of bouncy balls increases, the quantity demanded will greatly decrease, and if the price decreases, the quantity demanded will increase.
released July 22, 2017
all rights reserved