When we talk about elasticity in economics, we talk about the price elasticity of the demand curve for a certain product or service. Actually, with the concept of elasticity, what is done is to measure the response capacity of a certain good or service to a price change. Thus, the elasticity of demand can be defined as a ratio of percentage changes in quantity demanded and price.
What is the elasticity of demand?
In general, if everything remains constant, there is an inverse relationship between the price and the quantity of a good or service that is requested or demanded. However, not all products or services behave the same when the price changes. Therefore, a distinction is made between those whose demand is elastic and those whose demand is inelastic.
An inelastic demand supposes the existence of a demand curve that tends to be vertical. Therefore, regardless of price, the volume of demand is maintained. In these cases, the coefficient of elasticity is less than one (absolute values are taken). On the contrary, the demand for a good or service will be elastic when the coefficient of elasticity exceeds 1.
The demand for most goods and services is elastic, so that as the price increases, the demand decreases, and vice versa.
There are also other reasons that influence the elasticity of demand, such as the greater or lesser need for goods or services in the short term. Thus, staple products or services tend to have a more inelastic demand than others, unless there are clearly substitute goods or services for such products.
Furthermore, the elasticity is not constant throughout the entire demand curve, and may be more elastic in the case of high prices than for low prices.