What do I mean by “changes a lot”? Well, if the percent change in the quantity demanded is greater than the percent change in the price, economists label the demand for the good as elastic.įor example, if the price of a good increases by 10 percent and the quantity demanded of that good decreases by 20 percent, that good is said to have elastic demand. In economic terms, the quantity demanded of that good changes a lot when there is a change in the price of that good. So a good that is price elastic has a very stretchy quantity response when there is a change in price. For any given good or service, the price elasticity of demand measures how much the quantity demanded by consumers responds to a change in the price of that good or service. It is a measure of how sensitive, or responsive, consumers are to a change in price. That’s where the price elasticity of demand comes in. For some goods, the quantity demanded stretches a lot when the price changes: for others, not so much. However, the law of demand does not tell us how much more or less consumers tend to buy. Likewise, when the price of a good or service falls, consumers tend to buy more of it. The law of demand tells us that when the price of a good or service rises, consumers tend to buy less of it. Specifically, the economist would be referring to something called the price elasticity of demand and probably wouldn’t be too focused on the elastic quality that propels a rubber band off your finger: unless you hit the economist with the rubber band. The economist would likely refer to how much the quantity of rubber bands demanded changes-or how much it stretches-when the price of rubber bands changes. However, to an economist, the elasticity or stretchiness, of rubber bands can have a whole other meaning. One way to answer that question is by stretching a rubber band across your finger and shooting it across the room. Rubber bands are elastic and have a stretchy quality to them. The word “elasticity” is commonly used to describe things that have a stretchy quality to them.
PRICE ELASTY FOR A COMPANY SERIES
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