ELASTICITY

Price elasticity is a concept known for measuring the responsiveness of demand and supply quantities to the changes in price.

Elastic demand are commonly used when referred to the 'wants' of consumers. A small change in price may cause a drastic change in demand. For example, candy bars are an elastic demand. If the price of candy is around RM 1, most people will buy the candy and it will be high in demand. However, if that same candy bar's price rose up by RM 3, most people would rather not buy the candy as it is not a necessity. This is the graph of an elastic demand curve,

A real life example would be,

"LCD-TV Prices Increase as New Models Arrive and Promotions Fade" 

Overall the U.S. LCD-TV market is experiencing a softening in sales due to factors including seasonality, increasing prices for some key sizes and a slowdown in consumer uptake given the economic uncertainty. In July, retail inventories rose and stood at six weeks to nine weeks on average—considered somewhat, high for this time of the year. Brands and retailers, in order to fuel demand and the replacement cycle, will have to come up with aggressive promotions for the rest of the third quarter to generate excitement for the upcoming holiday season. (for more detail to the article, please refer to the link below)

Reference - http://www.isuppli.com/Display-Materials-and-Systems/News/Pages/LCD-TV-Prices-Increase-as-New-Models-Arrive-and-Promotions-Fade.aspx

As for inelastic demand, the quantity demanded by buyers do not change as much as the changes in price. Consumers will still continue to purchase the product with an inelastic demand even though the price has rose by a great amount. Let's put it this way, life-saving medication are expensive, but even if they are expensive, people will still buy them. Why? Well that obviously because it is clearly stated in the name, 'life-saving' medication, it saves lives! This is how an inelastic demand curve looks like, 

Here's a suitable real life example,

"The elasticity of oil production and consumption" 

The world oil market has become relatively inelastic in the sense that large increases in upstream investment no longer produce contemporaneous increases in supply. Even assuming there are no political obstacles,
cultural disruptions, weather problems, or geographical challenges to delay exploration and production, it still typically takes many years to develop a new oil field. (for more detail to the article, please refer to the link below)

 Reference - http://www.resilience.org/stories/2007-03-22/elasticity-oil-production-and-consumption

Written by : Brandon Yap