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Elasticity and Pricing

Elasticity and Pricing

Studying elasticities is useful for a number of reasons, pricing being most important. Let’s explore how elasticity relates to revenue and pricing, both in the long run and short run. But first, let’s look at the elasticities of some common goods and services.

This table shows a selection of demand elasticities for different goods and services drawn from a variety of different studies by economists, listed in order of increasing elasticity.

Some Selected Elasticities of Demand

Goods and ServicesElasticity of Price
Transatlantic air travel (economy class)0.12
Rail transit (rush hour)0.15
Taxi cabs0.22
Transatlantic air travel (first class)0.40
Transatlantic air travel (business class)0.62
Kitchen and household appliances0.63
Cable TV (basic rural)0.69
Soft drinks0.70
New vehicle0.87
Rail transit (off-peak)1.00
Cable TV (basic urban)1.51
Cable TV (premium)1.77
Restaurant meals2.27

Note that necessities such as housing and electricity are inelastic, while items that are not necessities such as restaurant meals are more price-sensitive. If the price of the restaurant meal increases by 10%, the quantity demanded will decrease by 22.7%. A 10% increase in the price of housing will cause a slight decrease of 1.2% in the quantity of housing demanded.

Note: Read this article for an example of price elasticity that may have affected you.

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