Elasticities of Supply and Demand

Rubber bands aren’t the only thing that have elasticity in your day-to-day life. Elasticities of supply and demand tell us how likely we are to change our behavior (i.e., the quantity of whatevers that we've bought) in response to changes in something else (usually price).

The more sensitive we are to price changes, the more elastic we are in the quantity we buy. The less sensitive we are to price changes, the more inelastic we are in the quantity we buy. Ferrari buyers: Highly insensitive to price; buyers of gasoline: Highly sensitive to price.

If you’re in the grocery store and see that your fave ice cream is on sale, does that make you buy two instead of one? If so, your elasticity of demand for that cream-of-the-crop ice cream is high. If not...well...you’re hard as nails, and you have inelastic demand for that ice cream. One is enough, you say.

Not enough parking is an example of inelastic supply that we all love to hate. Sometimes there’s a high demand for parking and just not enough spaces. Even as the demand rises...increasing what people are willing to pay to snag a spot to park their hunk of metal...the supply remains stoic and unchanging. It’s not that parking supplies want parking spaces to be inelastic when demand rises...they just don’t have the ability to make more parking. Yet.