Elasticity of Demand

Elasticity of demand is used in economics to demonstrate how strongly buyers will react to a change in a good's price. When demand for a good is elastic, buyers will make relatively big changes to their consumption of a good when its price rises or falls. For instance, if a consumer is willing and able to buy 300% more of a good at a slightly lower price, the demand is said to be highly elastic.

On the other hand, when demand is inelastic, consumers will only change their consumption slightly relative to a change in price.  Even though the price is lower, the demand doesn't go up significantly.  Example: Suppose the price of a prescription drug was reduced drastically.  A consumer would probably be happy about the lower price, but might not buy more of the drug, because he or she only requires a certain dosage regardless of its price.  In other words, the demand for a good is said to be inelastic if a change in its price has a relatively small effect on how much of it consumers want to buy.

Mr. Stimson's Example: "As a teacher, I have to drive a certain number of miles every day to get to PHS. Even if gasoline were to go up in price, I would still have to buy it. So, my demand for gas is relatively inelastic." 

Activity:

Now think about how you respond to prices and answer the following questions:
1. What is one example of an inelastic demand in your daily life?
2. What is one example of an elastic demand in your daily life?