The degree to which demand or supply reacts to a change in price is known as its ‘elasticity’. Normally, sales increase with a drop in prices and decrease with a rise in prices. Elasticity varies among products because some products may be more essential to the consumer. If a small change in price leads to a sharp change in the quantity demanded or supplied a good or service is considered to be highly elastic. Usually these kinds of products are readily available in the market and are not necessarily deemed as ‘essential’ items.
A good or service is deemed ‘inelastic’ when changes in its price result in only modest changes in the quantity demanded or supplied. These goods tend to be things that are more of a necessity to consumers.
A good understanding of food elasticities is important in many strategic decisions undertaken at the industry level.