Elasticity Of Demand

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Definition: Elasticity Of Demand




Full Definition of Elasticity Of Demand


The elasticity of demand, also known as price elasticity of demand is a variation of demand. It can be categorized as unitary, elastic and inelastic. It is defined as how much the demand for a particular commodity change with a change of its price.

Examples

Elasticity

In elastic demand, when the price changes the quantity demanded is highly affected. Such examples include durables (items bought infrequently) which can be purchased at a later date; they are not necessary for living today. Examples include homes and cars.

If a comparable item can be substituted for the product in question, buyers may consume more of that item if it becomes cheaper. An example could be consumers buying generic brands in a supermarket instead of high-profile national brands. These products that are easily substitutable have a tendency to have elastic demand.

Inelasticity

It would be inelastic if people continued to buy petrol despite the increase in prices; the change in quantity could still exist, but it would be small. Items which are essential to everyday living and cannot be postponed (non-durables) tend to be inelastic. For example, if the prices of staple foods increase, consumers have no choice but to keep buying them.

Factors

The factors that play a crucial role in price elasticity of demand include:

  • The proportion of income required by the item
  • Permanent or a temporary price change
  • Availability of substitutes
  • Price points
  • The time period under consideration

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Definition Sources


Definitions for Elasticity Of Demand are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 2 Views.