Example on the concept of elasticity

Elasticity of demand is not just a theoretical term and hence its use is not limited to empirical application only but is very practical in economic. There are a lot of life examples on how each type of demand elasticity is achieved. For illustration purposes let us take a commodity whose prices do not change rapidly with time. Elasticity of demand will be said to be the degree of responsiveness in quantity demanded relative to changes in demand indicators and other factors being held constant. If we have a commodity like diamond and the prices of diamond decrease or the income of the consumers increase there will be an increase in the quantity demanded. Elasticity of demand will therefore measure the changes brought about by a decrease in prices of diamond or increase in consumers income relative to the changes in quantity demanded brought about by these factors.


Different types of goods have different types of demand elasticity. Some will have elastic demand others inelastic demand and others have unitary demand. Commodities that have inelastic demands are low priced products like food additives or spices. Irrespective of the amount of changes in prices of these goods the quantity demanded will remain the same or will decrease very slightly. The reason for this is t increase in prices for this commodity affects the consumer’s budget negligibly.  The other type of elasticity is exhibited by goods that have close substitute in the markets such as toothpastes. Slight changes in prices of one brand of toothpaste will result to a significant decrease in the quantity demanded from that brand. Such a commodity is said to elastic. The other group of commodity is the good that is used for fun and does not add much value to a consumer. Such a good is purchased because their price seems to be friendly in the market hence an increase in its prices result to a similar effect on the quantity demanded.

Income elasticity of demand exists when an increase in income increases the quantity demanded as prices are held constant. If we have a population that was earning $4000 at the beginning of the year and their budget was constrained by this amount to buy a given amount of goods. If their income at a later date in the year increases to $6000 it means that their budget has be expanded hence the quantity purchased will increase.  Therefore the extra $2000 will be used to purchase more quantity in the market increasing market demand.

An example of the price elasticity of demand is when a commodity like gold is trading at $ 4000 per carat. A change in the prices of gold will result to a change in the quantity demanded. If the prices of gold reduces slightly there will be a huge increase in the quantity demanded hence the demand for gold is very elastic when its prices go down. If the prices of gold was to go up slightly there would be a relatively small change in quantity demand hence the demand for gold when prices increase is inelastic.

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