Demand features
Principles of Economics // Spring 2026
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.
Examples
- Suppose a 10% increase in the price of your favorite coffee (e.g., it was $3.00, and now is $3.30). Say you used to buy 2 cups a day, but given this price change, you will only buy one. By how much has your quantity demanded changed?
- What is your price elasticity for coffee?
Examples
- Suppose your electricity bill has gone up 20%. (For example, it was $100 and is now $120.) Then, you started turning off your PC at night rather than leaving it on all day. You have an app to track your consumption, and you notice you have reduced energy consumption by 5%.
- What is your price elasticity for electricity?
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.
\[ \text{Income elasticity of demand} = \dfrac{\Delta Q}{\Delta I} \]
Examples
Suppose the following scenarios:
- Your annual income falls from 80K to 50K. Given that, your demand for ramen noodles increases from 10 to 100 packages/year.
- Your annual income increases from 50K to 80K. Given that, your demand for steak increases from 1 to 3/week.
- Your annual income increases from 50K to 100K. Given that, your demand for cigarettes increases from 2 to 3 packs/week.
Consumer sentiment
Consumer sentiment
Consumer sentiment
US consumer confidence dives to a more than 11-1/2-year low (Reuters)
Consumer sentiment
In the US, we have two surveys that track consumer confidence over time: