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Elasticity of demand


A term used in economics to refer to the reaction of demand to changes in price. Demand for a product is said to be elastic or inelastic according to its sensitivity to marginal price changes (marginal because obviously all demand for any product is ultimately determined by price). In the UK, the demand for salt is relatively inelastic. The quantity of salt used is not determined by price, though obviously there would come a point where the public would stop buying and look for an alternative. The demand for a competitive soap powder, on the other hand, is elastic, as there are many substitutes available, and a small price change could have a marked ffect on demand for that particular brand.

Reference: The Penguin Business Dictionary, 3rd edt.