Introduction
What do you think of when you think of the word elastic? Rubber bands probably, right? In economics, we refer to elasticity when we are trying to determine whether a buyer is responsive to a change in price.
- If the buyer is responsive or flexible, we say that the demand for the product is elastic. This means the buyer stretches to either purchase the product with the new low price or retracts to avoid purchasing the product.
- Conversely, if a buyer purchases the product regardless of the price the demand for the product is considered inelastic.
Understanding the elasticity of a product is one of the most important tools needed in making good economic decisions. This is true for many people including you, a locally owned business, and even a government policy maker like a mayor in a small town, a legislator and governor in a state, and the Congress and President of the United States.
Additionally, in this lesson you will learn how to take the information you have learned about demand and graphically represent that information. Graphs are one method that economists use to understand the sometimes complicated elements of demand.
Following successful completion of this lesson, students will be able to...
- explain why elasticity is a measure of a responsiveness.
- analyze the elasticity of demand for a product.
- understand the factors that determine demand elasticity.
- illustrate on a graph the law of demand.
The above objectives correspond with the Alabama Course of Study: Economics standards: 6.2, 6.3, 6.4.