Elasticity: Why Gas Prices Barely Change Demand, But Concert Tickets Do
How Sensitive Is Demand, Really?
Elasticity measures how much quantity demanded changes when price changes. Some goods are INELASTIC - demand barely moves even when price does - and others are ELASTIC, where a small price change causes a big swing in how much people buy.
Price elasticity of demand = %change in quantity demanded / %change in price
|E| < 1 -> inelastic (demand barely reacts)
|E| > 1 -> elastic (demand reacts strongly)Gasoline is famously inelastic in the short run: people still need to commute even when prices spike, so quantity demanded barely drops even as prices jump noticeably - there's no quick substitute. Concert tickets for a specific show are elastic: raise the price meaningfully and a lot of people simply decide not to go, because there are countless other ways to spend that same money and evening.
What actually drives elasticity: how many substitutes exist (few substitutes = inelastic), whether it's a necessity or a luxury (necessities are more inelastic), and how big a share of your budget it takes up (a bigger share makes people more price-sensitive). This is exactly why airlines can charge wildly different prices for the same seat depending on how far in advance you book - business travelers booking last-minute are relatively price-inelastic (they need to be there), leisure travelers booking months ahead are elastic (they'll wait for a deal or pick a different destination).