Definitions and Basics

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….


Demand, by David R. Henderson in the Concise Encyclopedia of Economics

What the skeptics may have in mind is not that people would not cut back their purchases at all when the price of a good increases, but that they might cut back only a little. Economists have considered this thoroughly and have developed a measure of the degree of cutback, which they call the “elasticity of demand.” The elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. The greater the absolute value of this ratio, the greater is the elasticity of demand.


Elasticity of Demand, Marginal Revolution University

How much does quantity demanded change when price changes? By a lot or by a little? Elasticity can help us understand this question. This video covers determinants of elasticity such as availability of substitutes, time horizon, classification of goods, nature of goods (is it a necessity or a luxury?), and the size of the purchase relative to the consumer’s budget.


Introduction to Price Elasticity of Demand, Khan Academy

Economists use the concept of price elasticity of demand to describe how the quantity demanded changes in response to a price change. In this video, explore a simple way to calculate the price elasticity of demand, how to interpret that calculation, and how price elasticity of demand varies along a demand curve.


In the News and Examples

Elasticity of Demand, the Economics Lowdown Podcast Series

How elastic are rubber bands? There’s more than one way to answer this question. The word “elasticity” is commonly used to describe things that have a stretchy quality to them. You might try to answer the question by stretching a rubber band across your finger and shooting it across the room. To an economist, however, elasticity can have a whole other meaning. Learn more in this episode of The Economic Lowdown.


Richard McKenzie on Prices. EconTalk podcast episode, 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]

Advanced Resources

Elasticity of Demand, Econlib College Economics Topics

A Refresher on Price Elasticity, Amy Gallo for Harvard Business Review, August 21, 2015

Setting the right price for your product or service is hard. In fact, determining price is one of the toughest things a marketer has to do, in large part because it has such a big impact on the company’s bottom line. One of the critical elements of pricing is understanding what economists call price elasticity.

Price Elasticity of Demand, at Economics Help. Help with formulas and calculations related to elasticity.


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