Money in Real Life · 45 sec
Price elasticity of demand
A practical idea for making clearer everyday money decisions.
The useful idea
- Quantity reacts
When the price rises, quantity demanded falls for almost any good (law of demand), but it falls more for some than for others.
- Elastic means responsive
Demand for a good is said to be elastic when the elasticity is greater than one.
- Inelastic means limited change
Demand for a good is said to be inelastic when the elasticity is less than one in absolute value: that is, changes in price have a relatively small effect on the quantity demanded.
Why this matters
Use Price elasticity of demand to compare the trade-offs before committing money.
Try this
Use Price elasticity of demand to compare the trade-offs before committing money.
Test your recall
Which idea belongs to the explanation of Price elasticity of demand?
- Inelastic means limited change
- Elastic means responsive
- Quantity reacts — correct
When the price rises, quantity demanded falls for almost any good (law of demand), but it falls more for some than for others.
General education only — not personal financial advice.