Price Elasticity of Demand

Some products are naturally highly sensitive to a slight price changes, while other products remain almost completely unaffected by a large price change. Economics refer to this property of a product’s sensitivity to price as its elasticity. An elastic product is a product for which the demand is highly affected when a price change occurs. Meanwhile, an inelastic product is a product for which demand is somewhat unaffected when a price change occurs. In terms of a mathematical sense, an elastic good is one for which demand changes by more than one percent for every one percent change in price (again, displays sensitivity). An inelastic good is one for which demand changes by less than one percent for every one percent change in price (insensitivity). Following is examples and determinants of elasticity.
Examples of relatively elastic goods:
• luxury chocolates
• vacation
• technologies such as MP3 players
Examples of relatively inelastic goods:
• medicines
• gasoline
• electricity
• water
Clearly, elastic goods are generally luxuries while inelastic goods are logically necessities.

Here are some determinants of elasticity
• How badly you need it
• Substitutes (If Hershey’s doubles it’s prices, you’d be willing to settle for Mars, right?)
• Time factor (For example, a house is a long term purchase and it’s not an immediate necessity. If the prices of houses shot up, consumers would be willing to wait)