Elasticity in economics refers to the responsiveness of the quantity demanded or supplied of a good or service to a change in its price or other economic factors. It measures how sensitive consumers and producers are to price changes and can be classified as price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross-price elasticity of demand.
Example of an Inelastic Good:
- Insulin: Insulin is a life-saving medication for people with diabetes. No matter how much the price increases, individuals who need insulin will continue to purchase it because they require it to manage their health. This results in a low price elasticity of demand, indicating that the quantity demanded does not change significantly with changes in price.
Example of an Elastic Good:
- Luxury Cars: Luxury cars are considered a non-essential purchase for many consumers. If the price of these cars increases, many potential buyers may decide to defer their purchase or seek alternatives, resulting in a significant decrease in the quantity demanded. This demonstrates a high price elasticity of demand, as consumers are sensitive to changes in price.
1 answer