What is Elasticity?

In Short

Elasticity is how behavior in a market changes in response to a change in price. A demand curve can be described as elastic or inelastic. A supply curve can be described as elastic or inelastic. See post on equilibrium for more on curves.

Elastic Demand Curve

This is when a small increase (decrease) in the price causes a large decrease (increase) in the quantity demanded. For example: if the local supermarket raises their apple prices by $1.00, most people will simply buy their apples from another cheaper supermarket. If that supermarket drops their price by a dollar; more people will shop there instead of at other stores.

Inelastic Demand Curve

This is when a large increase (decrease) in the price causes a small decrease (increase) in the quantity demanded. For example: if a lifesaving medicine is exclusively sold by company A and company A raises the price by 1000%, demand for that product is unlikely to drop for the buyers don’t have a choice. If the company lowers prices, demand is unlikely to increase for anyone who needed the medicine was likely already buying it.

Elastic Supply Curve

This is when a small increase (decrease) in the price causes a large increase (decrease) in the quantity supplied. For example: An apple seller learns demand for apples has increased due to a famous actor eating an apple in a movie. The market price for apples has thus increased by $1.00. They will then buy more apples from their supplier in order to fulfill that higher demand. Example 2: That seller learns demand for apples has decreased due to that same actor saying apples are horrible and the market price has dropped by $1.00. The apple seller will decrease the amount of apples they order from their supplier for they don’t need as many to satisfy the demand.

Inelastic Supply Curve

This is when a large increase (decrease) in the price causes a small increase (decrease) in the quantity supplied. For example: An apple seller learns demand for apples has increased due to a famous actor eating an apple in a movie. The market price for apples has increased by $1.00. They are, however, locked into a contract with a supplier who is out of stock. They as a result cannot respond to that higher demand. Example 2: That seller learns demand for apples has decreased due to that same actor saying apples are horrible and the market price has dropped by $1.00. They are, however, locked into contract with a supplier that states they have to buy at least a certain amount of apples per year. So they can’t decrease the number of apples they order in response to the lower demand.

Applications of Elasticity

Elasticity informs economists of the effects of various market interventions such as sales taxes, subsidies, etc.


Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. Please contact me if you want me to write about a particular topic. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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