Elasticity of Demand

How much does quantity demanded change when price changes? By a lot or by a little? Elasticity can help us understand this question. This video covers determinants of elasticity such as availability of substitutes, time horizon, classification of goods, nature of goods (is it a necessity or a luxury?), and the size of the purchase relative to the consumer’s budget.

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00:00 Introduction
00:51 Elastic vs. Inelastic
01:57 Inelastic Graph Example
02:28 Elastic Graph Example
03:18 Elasticity Rule
04:15 Determinants of Elasticity of Demand
05:09 1. Availability of Substitutes
07:31 2. Time Horizon
09:00 3. Classification of the Good (Broad vs. Narrow)
10:11 4. Nature of the Good (Necessity vs. Luxury)
11:12 5. Size of the Purchase, Relative to Your Budget
12:19 Summary