Elasticity of Demand

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Definitions and Basics

    Elasticity, from Answers.com
    Price elasticity of demand is the quantitative measure of consumer behavior that indicates the quantity of demand of a product or service depending on its increase or decrease in price. Price elasticity of demand can be calculated by the percent change in the quantity demanded by the percent change in price....
    Elasticity and Its Expansion, by Morgan Rose in Teacher's Corner at Econlib
    As this semester closed, I asked several colleagues who taught introductory economics courses to name the most difficult topics to teach to first-time economics students. There was some variation in their answers, but one concept was mentioned far more often than any other—elasticity. In this Teacher's Corner, we will define what elasticity means in economics, explain how one particular type of elasticity is calculated, and discuss why the concept is critical to economic agents trying to maximize their revenue....

In the News and Examples

    McKenzie on Prices. Podcast. EconTalk, June 23, 2008. Elastic and inelastic demand at time mark 33:52.
    Richard McKenzie of the University California, Irvine and the author of Why Popcorn Costs So Much at the Movies and Other Pricing Puzzles, talks with EconTalk host Russ Roberts about a wide range of pricing puzzles. They discuss why Southern California experiences frequent water crises, why price falls after Christmas, why popcorn seems so expensive at the movies, and the economics of price discrimination.

A Little History: Primary Sources and References

    Alfred Marshall, biography from the Concise Encyclopedia of Economics
    To Marshall also goes credit for the concept of price-elasticity of demand, which quantifies buyers' sensitivity to price....
    The Elasticity of Wants, by Alfred Marshall. Book III, Chapter 4 from Principles of Economics
    The elasticity of demand is great for high prices, and great, or at least considerable, for medium prices; but it declines as the price falls; and gradually fades away if the fall goes so far that satiety level is reached.... [par. III.IV.4]

    Water is one of the few things the consumption of which we are able to observe at all prices, from the very highest down to nothing at all. At moderate prices the demand for it is very elastic. But the uses to which it can be put are capable of being completely filled: and as its price sinks towards zero the demand for it loses its elasticity. Nearly the same may be said of salt. Its price in England is so low that the demand for it as an article of food is very inelastic: but in India the price is comparatively high and the demand is comparatively elastic.... [par. III.IV.12]

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