Elasticity Of Demand

Elasticity Of Demand

A measure of a commodity’s demand as its abundance increases or decreases.

Scenario 1: The price of a good is the typical way we appraise a commodity in the context of an economy.

We give it a price.

When we create a graph, the line and its curve will show the quantity demanded in correlation to a reaction in price changing.

Scenario 2: Timmy goes to the store to buy an apple. Yesterday, that apple cost fifty-cent, but today it costs more. As he takes a bite, he wonders why so many people want these shockingly average apples.


To really understand Elasticity Demand we have to define the term in two contexts, being  Elasticity Of Demand and the Price Elasticity of Demand which is a similar measure that measures price change, and not just the quantity in demand.

Elasticity of Demand is a measure of the responsiveness of the quantity demanded to a change in some other variable on which quantity demanded is dependent, all other things held constant.

This is akin to measuring the change in quantity now in demand because of a one percent change with other variants. Of course, all other variables must remain constant.

In other words,

Price Elasticity of Demand is a measure of the responsiveness of the quantity demanded to a change in price of a good/service, all other things held constant.

Deep Analysis

It is a measure of the percentage difference in quantity being requested due to a one percent change in the price of the product or service in question. In this formulation, all other things remaining constant.

In general, the price elasticity of demand is negative. This is in conformity with the law of demand.Deep Analysis

In contrast, despite how prevalent and routine price elasticity might be in the marketplace, healthcare in the United States does not follow the rules of price elasticity.

Despite a wide variety of empirical methods and data sources, the demand for health care is consistently found to be price inelastic. Although the range of price elasticity estimates is relatively wide, it tends to center on –0.17, meaning that a 1 percent increase in the price of health care will lead to a 0.17 percent reduction in health care expenditures. The price-induced changes in demand for health care can in large part be attributed to changes in the probability of accessing any care rather than to changes in the number of visits once care has been accessed. In addition, the studies consistently find lower levels of demand elasticity at lower levels of cost-sharing.

Elasticity of Demand is basically the worth of a product in the context of whatever economic factors you wish to measure it by. The most common being price. This can be demonstrated with an elastic good where its value is defined by the rise in demand if the price is changed.

An analysis of almost 30 years of state-level data found that a 1 percent increase in beer taxes is associated with a 1.0 percent decrease in youth drinking (Carpenter et al., 2007).

Elasticity of Demand is a measure of a commodity’s demand as its abundance increases or decreases. But no matter the science behind elasticity demand, one thing is clear and that is; beware the consumer, if they react negatively, their behavior can break you.

The Law of Demand

The law of demand is one of the most basic concepts in economics, and it works in cooperation with the law of supply. It states that quantity purchased varies inversely with price. Therefore, the higher the price of a product or service, the lower it will be demanded by consumers.

By this standard, you can assume that consumers will use the initial units of a good they purchase, then use successive units of that good to serve their needs later.

Applications in Business

Demand will behave the way it does as a reaction to a range of variables. The factors mentioned below can affect the quantity in demand and can reduce or increase its impact.

Do substitutes for your good or service exist? How do they compare to yours in  terms of price and quality?

Will a consumer substitute your product with something else because your price changed? How are you defining your good or service?

Is the customer educated on what you are offering?

What budgetary constraints do your users/customers face?

How much does the income of your consumer come into play? Are they positioned to remain loyal if your price goes up?****

How strong is your brand? How high or low is your brand affinity?

How strong is the loyalty between your brand and your consumer? Will they go somewhere else if Demand elasticity shifts and quantity is decreased?

Application in Education

The Elasticity of Demand principle can also be relied upon when thinking about your educational career.

Considering that there is a specific number of people who will graduate with a certain degree each year, and there are a number of people already in the workforce with each degree, you can determine the value of your degree by looking at the Elasticity of Demand for it.

If there are a vast number of people pursuing the same coursework as you, it is safe to assume that there are many people who will have similar expertise as you. Therefore, when you enter the job market, chances are you will face fierce competition.

With this logic in mind, it makes sense to target a less competitive degree.

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