Demand features

Principles of Economics // Fall 2025

Prof. Santetti

marcio.santetti@emerson.edu

Elasticities

Elasticities


To quantify consumer behavior → elasticity



The most common elasticity category is the price elasticity.


Suppose a change in the price of a good/service:

  • Large change in the quantity demanded?

  • Small change in the quantity demanded?

Elasticities



\[ \text{Price elasticity of demand} = \dfrac{\Delta Q}{\Delta P} \]




Elasticity is all about proportional changes.

Elasticities


What influences the demand elasticity?



  • Necessity or luxury?
  • Good substitutes?
  • Can it be postponed?

Prices, elasticity, and consumer responses


From Andreyeva et al. (2010). The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health, 100(2).

Income elasticity

Income elasticity


The income elasticity of demand is the percentage change in the quantity demanded following a percentage change in income.


\[ \text{Income elasticity of demand} = \dfrac{\Delta Q}{\Delta I} \]

Consumer sentiment

Consumer sentiment




Consumer confidence worsened slightly in August (ABC News)

Consumer sentiment


In the US, we have two surveys that track consumer confidence over time:



Next time: The public sector