Let's look first at the response of consumer demand to prices changes. The price elasticity measures how much the quantity demanded of a good change when its price changes. The precise definition of price elasticity is the percentage change in quantity demanded divides by the percentage change in price.
Goods vary enormously is their price elasticity, or sensitivity to price changes. When the price elasticity of good is high, we say that good has elastic demand, which means that is quantity demanded responds greatly to price changes. When the price elasticity of a good is low, it is inelastic and its quantity demanded responds little to price changes.
For necessities like food fuel, shoes, and prescription drugs demand tends to be inelastic. Such items are the staff of life and cannot easily be forgone when their prices rise. By contrast, you can substitute other goods when luxuries like European holidays 17 years old Scotch whiskey, and Italian designer clothing rise in price.
In addition, goods that have already substitutes tend to have more elastic demand than those that have no substitutes. If all food or footwear prices were to rise 20 percent tomorrow, you would hardly except people to stop earning or to go around barefoot.
Goods vary enormously is their price elasticity, or sensitivity to price changes. When the price elasticity of good is high, we say that good has elastic demand, which means that is quantity demanded responds greatly to price changes. When the price elasticity of a good is low, it is inelastic and its quantity demanded responds little to price changes.
For necessities like food fuel, shoes, and prescription drugs demand tends to be inelastic. Such items are the staff of life and cannot easily be forgone when their prices rise. By contrast, you can substitute other goods when luxuries like European holidays 17 years old Scotch whiskey, and Italian designer clothing rise in price.
In addition, goods that have already substitutes tend to have more elastic demand than those that have no substitutes. If all food or footwear prices were to rise 20 percent tomorrow, you would hardly except people to stop earning or to go around barefoot.