How does the price elasticity change with respect to supply and demand?

The price elasticity of a product describes the sensitivity of suppliers and buyers to price changes. It doesn’t change with supply and demand, but it defines the slope of each curve.

A product with high price elasticity of demand will see demand fall sharply when prices rise. For the product with high elasticity of demand, the falling demand curve appears flatter, and for each price change, there is a large change in the quantity demanded. A demand curve for a product with low elasticity appears to be steeper, because the quantity demanded does not change much, even if the prices do. Products with low price elasticity are described as inelastic.

Products with high price elasticity are generally non-essential products. For example, the demand for teeth whitening kits can be highly price dependent and therefore quite elastic. Demand for toothpaste, on the other hand, can be relatively inelastic whether or not the price changes. A key factor affecting the elasticity of demand includes the availability of substitutes or products very close to the product in question.

The time available to think about the different options and the type of property are also important; a consumer can shop around for the best deal on items that consistently take up a large portion of a budget, such as groceries, while ignoring price differences for relatively infrequent small purchases, such as shoe polish.

Likewise, a product with high price elasticity of supply has a flatter upward curve. A product with low supply elasticity has a steeper curve. The price elasticity of supply can be calculated by dividing the percentage change in supply by the percentage change in price. The same factors that affect elasticity of demand affect elasticity of supply, namely the availability of substitute inputs and the time required to make changes in output. (For related reading, see “How Does Price Elasticity Affect Supply?”)


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