Relatively elastic refers to the degree to which the quantity of a good or service demanded changes in response to a change in its price. When a good or service is relatively elastic, a small change in price results in a relatively large change in the quantity demanded. This means that the demand for the good or service is sensitive to changes in price.
On the other hand, when a good or service is relatively inelastic, a small change in price results in a relatively small change in the quantity demanded. This means that the demand for the good or service is not very sensitive to changes in price.
There are several factors that can influence the elasticity of demand for a good or service. Some of these factors include the availability of substitutes, the importance of the good or service to the consumer, and the percentage of the consumer's budget that the good or service represents.
For example, if a consumer has several substitutes available for a particular good or service, they are more likely to switch to a substitute if the price of the original good or service increases. This means that the demand for the original good or service is relatively elastic. On the other hand, if a consumer has few or no substitutes available, they may be more likely to continue purchasing the original good or service even if the price increases. In this case, the demand for the good or service is relatively inelastic.
Another factor that can influence the elasticity of demand is the importance of the good or service to the consumer. If a good or service is essential to a consumer's daily life, they may be more likely to continue purchasing it even if the price increases. In this case, the demand for the good or service is relatively inelastic. On the other hand, if a good or service is not essential, a consumer may be more willing to switch to a substitute or do without if the price increases. In this case, the demand for the good or service is relatively elastic.
The percentage of the consumer's budget that a good or service represents can also influence its elasticity of demand. If a good or service represents a significant portion of the consumer's budget, they may be more sensitive to changes in price and the demand for the good or service may be relatively elastic. On the other hand, if a good or service represents a small portion of the consumer's budget, the consumer may be less sensitive to changes in price and the demand for the good or service may be relatively inelastic.
In conclusion, relatively elastic refers to the degree to which the quantity of a good or service demanded changes in response to a change in its price. The elasticity of demand can be influenced by the availability of substitutes, the importance of the good or service to the consumer, and the percentage of the consumer's budget that the good or service represents. Understanding the elasticity of demand can be helpful for businesses when setting prices for their products and for policymakers when considering the potential effects of taxes or other price changes on consumer behavior.
