Price Elasticity
Price elasticity is the percent change in quantity demanded or supplied for a one percent change in price — how much the tape moves volume when the price moves.
Definition
ε = (dQ/Q) / (dP/P). |ε| > 1 is elastic; < 1 inelastic. Cross-price and income elasticities complete the map. In markets, ‘inelastic demand’ is also a flow story: forced buyers (indexers, LDI, gamma hedgers) keep buying as price rises.
Why it matters
Elasticities decide incidence of a tax, a tariff, or a basis shock. A squeeze is inelastic residual demand meeting a thin book.
Case
OPEC cuts that lift oil 10% with a 2% demand drop imply inelastic short-run demand. The same cut into a recession can look elastic because income, not price, moved Q.
How to read it
Always state the horizon and the ceteris-paribus. Short-run energy demand is inelastic; long-run substitution is not. Do not mix them.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- The Laws of Demand and SupplyMarshall · 1890 · Principles of EconomicsClassic elasticity in the Marshallian demand curve.