Economics Elasticity And Inelasticity

Explain how elasticity and inelasticity work. How does this help make sense of basic supply and demand?

When we see economic terms and theories they can seem a bit overwhelming or complicated, but often they are just a scientific or mathmetical way to explain things in the world around us that most of us take for granted or chalk up to common sense.

As an example elasticity or inelasticity are the economic terms used to describe how supply and demand change with price change for different products.

If the demand or supply of a product in the marketplace is effected by a price change in a significant way it is said to be elastic. If the price change effects little change on the supply or demand of the product it is said to be inelastic.

Economist use a formula of the percentage change in demand divided by the percentage change in price. If this number is greater than one than the item is said to be elastic. If it less than 1 it is said to be inelastic. Elastic goods are therefore really responsive to price change and inelastic items show little response to the change of price in the market. Sound complicated? It is not when you look at it in real life terms and can relate it to what you se in the market around you daily. Here is where we can see it apply easily to the basics of supply and demand.

How elastic or inelastic an good is depends often in how esential it is to the consumers. Items that are seen as more essential to the buyer are more inelastic where as items that more inessential or a luxury, or have more alternatives in the face of an increase will be more elastic. Other factors in addition to the necessity of the product that can effect the elasticity or inelascity of an item to an individual is the percentag...

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...may be some health care choices. The increase in life saving techniques, medicines and operations will not see a change in demand as they are needed for life and therefore paid. But health care options that are less life preserving can become more elastic with price increases as other alternatives can be sought or they can be done without.

The other thing that relates with supply and demand with elasticity and inelasticity is that the inelasticity of an item will often create markets for alternatives and the ability for the market to expand or collapse because of the changes brought about with pricing.

So price elasticitiy is just how demand is effected by price change, the more the change the higher elaticity the item has. Inelastic being that demand is not effected by price change. It is a simple forumla and easily helps us understand supply and demand more.