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ALI EMRE BILGIC 

How to Understand Elasticity Concepts?

Writer: Ali Emre Bilgic
Ali Emre Bilgic
Oct 4, 2025
1 min read


 

https://www.investopedia.com/terms/e/elastic.asp




Determinants - What Makes Demand More or Less Elastic?

  • Availability of substitutes (more substitutes → more elastic)


  • Proportion of income spent on the good


  • Time: short-run vs long-run elasticity


  • Necessity vs luxury


  • Habit, brand loyalty



 Examples 

  • Gasoline is relatively inelastic in the short run — people still need to drive. Investopedia


  • Luxury goods or non-essentials tend to be more elastic.


  • If price of coffee rises a bit and people switch to tea → elastic response.



How to Use / Why It Matters

  • Firms use elasticity to set pricing: if demand is elastic, raising prices might reduce revenue.


  • Policymakers use it for taxes: taxing inelastic goods yields more stable revenue.


  • Helps predict effects of price changes on markets, revenue, consumer behavior.



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