he demand for books is said to be elastic. As a corollary, if there is just a little or no change in the quantity demanded due to the changes in price, the demand is said to be inelastic.
If one wishes to be highly graphic about the terminology, we can imagine the quantity demanded to be akin to a rubber band, and if the touches of price fluctuations are able to cause heavy vibrations, its clearly elastic.
Price elasticity of demand can be viewed as a scale with elastic and inelastic forming the two ends and the demands for different goods lying in between, such as highly elastic, perfectly elastic, less elastic and inelastic.
Price elasticity of supply is similarly, the change in the quantity supplied in response to the change in price.
The elasticity of a commodity isn’t necessarily the same across time, location or people. Its a constantly evolving source of information, dependent on the price level, nature of commodities, variety of uses, substitutes and a consumer’s preferences. For example, roses enjoy higher prices in the month of February due to their significance (via a brilliant marketing coup) being tied up with Valentine’s Day. Its precisely because they enjoy a much more elastic demand during the other months, readily substituted by other, better-smelling flowers while they become the object of every lover’s spending and earn the moniker of “the lazy man’s flower” (while flowers continue to be the “lazy man’s gift”, IMO). Now if one, like the author, doesn’t believe in the brouhaha around Valentine’s Day and flowers as gifts, their demand for roses would be highly elastic whereas for the poor souls aforementioned, it will be less elastic or inelastic even.
Elasticity of demand can also be used to think of how essential a commodity is to a person at a particular time. Demand for airline tickets is generally inelastic for business travellers who need to get to a place in time for their meetings, while casual travellers have elastic demand for the same and book when the prices are low enough for them.
Cross-price elasticity of demand is another important measure that we make use of and observe regularly. It is the change in the quantity demanded of commodity X due to the change in the price of commodity Y.
Consider what happens to goods that are substitutes of each other, such as products on Myntra and Jabong. If the prices of shoes on Myntra increase, people switch to Jabong. (It’s okay, the revenue stays in the family.) This means that the demand for goods on Jabong increases with the increase in prices on Myntra and decreases when Myntra declares a sale (reduction in prices). This is called positive cross elasticity of demand.
In case of complementary goods such as gin and tonic , the change in the price of gin will cause a proportionate change in the opposite direction in the quantity of tonic water demanded. If the price of gin increases, lower quantities of it shall be consumed (unless you’re an alcoholic) and as a corollary, less tonic water shall be required, leading to a proportionate decrease in its demand. This is called negative cross elasticity of demand.
Price elasticity and its various facets are used by business owners in measuring consumer response to price changes, policymakers to calculate tax incidence (effect of a particular tax on actions of citizens), and government to assess benefits (or the lack of) of subsidies, among others.
In another episode, our man Stringer passes on the lessons of elasticity as learned by him in his college class to his lackeys working at the print and copy business they run as a front for their illegal narcotics operation.
Needless to say, with his economic chops, Stringer Bell could have picked writing for Pragati as an alternative career.