A product is elastic when its sales change significantly in response to a price change. Specifically, if a 10% price increase causes more than a 10% drop in the quantity people buy, that product has elastic demand. The term comes from economics, and it describes how sensitive customers are to what something costs.
The Basic Idea Behind Elasticity
Elasticity measures how much buying behavior shifts when a price goes up or down. Economists calculate it by dividing the percentage change in quantity sold by the percentage change in price. If that number is greater than 1, the product is elastic. If it’s less than 1, it’s inelastic. And if it lands exactly at 1, economists call it “unitary,” meaning demand shifts in perfect proportion to the price change.
A product with an elasticity value of 2 or higher is considered highly elastic. In practical terms, that means a 10% price cut would lead to a 20% or greater increase in sales. The higher the number, the more dramatically consumers respond to pricing.
What Makes a Product Elastic
Three main factors push a product toward being elastic: how many alternatives exist, how necessary it is, and how large a share of your budget it takes up.
- Available substitutes. If there are 10 brands of lipstick on the shelf and one raises its price, most shoppers simply grab a different brand. Products in crowded, competitive markets tend to be highly elastic because switching is easy.
- Necessity vs. luxury. People cut back on luxuries first. During periods of job loss, consumers save money rather than upgrading their smartphones or buying designer purses. Demand for luxury goods swings sharply with price, while true necessities hold steady.
- Budget impact. A small price increase on something expensive, like a car, can push buyers to reconsider. A similar percentage increase on something cheap, like table salt, barely registers.
Common Examples of Elastic Products
Soft drinks are a textbook elastic product. There’s competition among every brand and type of soda, plus countless substitutes for the entire category. If Coca-Cola raised prices 15%, many buyers would switch to Pepsi, store brands, or skip soda altogether.
Airline tickets show elastic demand as well. Travelers can often choose not to fly if the cost gets too high, or substitute a car or train trip instead. Brand-name cereal, candy bars, electronics, and designer clothing all fall into the elastic category for similar reasons. Celebrity-branded products like Kylie Cosmetics, Feastables candy, and Prime energy drinks compete in markets with many established alternatives and sell goods that nobody strictly needs, both factors that make demand quite elastic.
Gasoline offers an interesting contrast. The overall market for gas is relatively inelastic because most people need to drive. But gasoline from any single gas station is highly elastic, since a cheaper station is usually just down the road.
Why Elasticity Matters for Pricing
For an elastic product, raising the price is risky. Price-sensitive customers leave faster than the higher price can compensate for, so total revenue actually drops. A movie theater with elastic demand, for instance, might find that a ticket price hike drives away so many customers that it earns less money overall, not more.
Lowering the price, on the other hand, can boost total revenue for elastic products. The flood of new buyers more than offsets the smaller margin per sale. This is why elastic markets are full of sales, promotions, and competitive pricing. Companies know their customers will respond.
For inelastic products, the math flips. Raising the price barely affects how much people buy, so revenue goes up. This is why essential medications and utilities can increase prices without losing many customers.
Elasticity Changes Over Time
A product that seems inelastic today can become more elastic over months or years. In the short run, consumers are often stuck with their current habits and limited options. Over time, they find substitutes, change routines, or adopt new technologies. Research on industrial commodities has shown that long-run price elasticity is consistently larger than short-run elasticity, because people have more time to identify alternatives and adjust their behavior.
This means a company might get away with a price increase for a few months, only to watch customers gradually drift to competitors as they discover other options.
The Other Meaning: Physical Elasticity
Outside of economics, calling a product “elastic” can refer to a physical property. In materials science, elasticity describes a material’s ability to return to its original shape after being stretched, bent, or compressed. Rubber bands, spandex fabric, and memory foam all have high physical elasticity. If you push on the material and it bounces back when you let go, it’s behaving elastically. This is a completely separate concept from price elasticity, though the underlying metaphor (stretching and snapping back) is the same.