Elasticity is an important idea in economics. It helps us understand how the amount of a product that people want (demand) or that businesses make (supply) changes when prices go up or down. Knowing about elasticity is helpful for both shoppers and sellers. Here are some easy examples to show how it affects the goods we buy every day.

Price Elasticity of Demand (PED)

1. Needs vs. Wants

   • Things we really need, like bread and milk, usually have inelastic demand. This means that when prices go up, people will still buy them. For example, if the price of bread goes up by 10%, people might only buy 1% less. This gives us a PED of -0.1.

2. Choices

   • Products that have similar choices, like different brands of soda, often have elastic demand. If Coca-Cola raises its price by 20%, a lot of people might decide to buy Pepsi instead. This can cause a big drop in Coca-Cola sales. The PED for sodas could be around -2.0, which means a 20% price increase could lead to a 40% decrease in how much Coca-Cola people buy.

3. Income Changes

   • Luxurious things, like fancy cars, tend to have elastic demand because people are more likely to change their buying habits when their income changes. If the price of a luxury car goes down by 15%, sales might go up by 30%. This shows that people really react to price changes for these products.

Price Elasticity of Supply (PES)

1. Types of Products

   • Manufactured items, like electronics, usually have elastic supply. If demand goes up by 25%, the amount supplied might increase by 50%. This gives a PES of 2.0.
   • On the other hand, farm products like wheat have inelastic supply. This is because crops can only grow during certain seasons. If the demand for wheat increases by 10%, the supply might only go up by 5%. This results in a PES of 0.5.

2. Time Matters

   • In the short term, the supply of some goods, like houses, can be inelastic. For example, if there’s a sudden need for more housing after a disaster, new houses can’t be built quickly. But over time, as new houses are built, supply becomes more elastic.

Real-World Examples

• The World Bank shows that the price elasticity of demand for everyday goods is about -0.2 on average. Luxury items can have an average of -1.5.
• Research from the European Commission found that if gasoline prices go up by 1%, people might only use 0.2% less gas. This shows how little change there is in how much fuel people buy, meaning it’s inelastic.

Conclusion

Understanding elasticity helps people figure out how price changes can affect their buying choices. It also helps sellers see how much they might need to adjust their supply when prices change. By looking at everyday products through the lens of elasticity, we learn important things about how the market works. This knowledge is key for making smart choices in the economy.