elasticity of demand

Meaning

A measure of how sensitive the quantity demanded of a good or service is to a change in its price. If demand changes significantly with a small price change, it is elastic; if it barely changes, it is inelastic.

Examples

• Because insulin is a life-saving drug, its elasticity of demand is extremely low.

  Because insulin is a life-saving drug, its elasticity of demand is extremely low.

• Luxury brands must carefully calculate the elasticity of demand before raising their prices.

  Luxury brands must carefully calculate the elasticity of demand before raising their prices.

• Understanding the elasticity of demand helps businesses determine whether a discount will increase total revenue.

  Understanding the elasticity of demand helps businesses determine whether a discount will increase total revenue.

• The high elasticity of demand for airline tickets means that even minor fare increases can deter travelers.

  The high elasticity of demand for airline tickets means that even minor fare increases can deter travelers.

• We need to analyze the price elasticity of demand to see how our customers will react to the new subscription model.

  We need to analyze the price elasticity of demand to see how our customers will react to the new subscription model.

Common Mistakes

• ✗ The product has a high elastic demand.

  ✓ The product has highly elastic demand.

  Avoid mixing the noun phrase 'elasticity of demand' with the adjective phrase 'elastic demand'. Use 'highly elastic demand' or 'high elasticity of demand'.

• ✗ We measured the demand's elasticity.

  ✓ We measured the elasticity of demand.

  In professional economics and business contexts, the standard prepositional phrase 'elasticity of demand' is preferred over the possessive form.

Related Expressions

Practice

• Since gasoline has no close substitutes, its ________ is relatively low in the short term.

  💡 How much demand changes when price changes.

  Show answer

  elasticity of demand

• To optimize our pricing strategy, we must first calculate the ________ for our software.

  💡 The economic measure of consumer price sensitivity.

  Show answer

  elasticity of demand