The declining price of poultry in recent years has caused the consumption of poultry to increase, at the expense of beef and pork. For example, beef, pork and poultry are all meat products. If another product can easily be substituted for your product, consumers will quickly switch to the other product if the price of your product rises or the price of the other product declines. For example, automobile rebates have been very successful in increasing automobile sales by reducing price.Ĭlose substitutes for a product affect the elasticity of demand. These are items that are purchased infrequently, like a washing machine or an automobile, and can be postponed if price rises. An example of products with an elastic demand is consumer durables. Note that a change in price results in a large change in quantity demanded. Elastic DemandĮlasticity of demand is illustrated in Figure 1. In other words, quantity changes at the same rate as price. If the number is equal to 1, elasticity of demand is unitary. In other words, quantity changes slower than price. If the value is less than 1, demand is inelastic. In other words, quantity changes faster than price. If the formula creates an absolute value greater than 1, the demand is elastic. The formula for computing elasticity of demand is: An inelastic demand is one in which the change in quantity demanded due to a change in price is small. Demand can be classified as elastic, inelastic or unitary.Īn elastic demand is one in which the change in quantity demanded due to a change in price is large. Elasticity of demand is an important variation on the concept of demand.
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