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Elasticity of Goods

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Stretton (1999) refers to elasticity as responsiveness of goods or services to change in price. Therefore, elasticity of goods refers to the sensitivity of a given type of commodity towards change of its market price. In macroeconomics, demand for given goods is said to be elastic if change in it highly responds to its price change. Goods whose demands have insignificant response to price change as said to be in elastic. In real life, luxuries tend to have elastic demand while necessitates inelastic demand. Goods can also be made elastic if there are other close alternatives to them. Elasticity can also be caused by a market that is defined more narrowly. Nevertheless, elasticity of goods increases with time as more people feel free to adjust their behavior. The proportion of income also influences elasticity of goods with a significant use of significant proportion of income leading to elasticity (Carbaugh, 2006).

For instance, if the price of natural gas is increased today, the household consuming this good will not react immediately to the increase. This is because; many of the households will still be having reserves for the gas. Nevertheless, the demand for the natural gas may reduce, thus elastic as more people may turn to other alternatives like electric cooking stoves that may be cheaper and better. With increased prices on natural gas and more households turning to electric stoves, the national electric grid will make more profits while the supply for natural gas will go down and the companies dealing with them making losses (Bunte, 2006).

A consumer good like natural gas in an elastic commodity since there exist other alternatives that can be employed in its place. These alternatives include electric stoves and solar heaters that households can use in case of increased prices of natural gas. Elastic goods like natural gas prompts consumer to adjust their spending by buying alternatives that are cheaper. In regard to elastic goods, price change is always accompanied by shift in demand either immediately or in the long run (Lipsey & Fraser, 1992) When consumers realize that an increase in price of goods represent small proportion of income, demand may not shift. An example is a 10% increase of the price of a ball point. This may translate to a few cents and thus may not result in the purchase of that commodity. In this case, the pen will be an inelastic good. Thus with more choices of a particular family of good, there is bound to be elasticity of demand upon price changes. When there are reduced prices on goods, firms will sell more goods getting a smaller margin. Increased prices on the other hand reduces consumer spending thus lowering the demand. Here, firms will sell few commodities due to consumers turning to alternatives.

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