The Elasticity of Wants1.We have seen that the only universal law as to a person's desire for a commodity is that it diminishes, other things being equal, with every increase in his supply of that commodity.But this diminution may be slow or rapid.If it is slow the price that he will give for the commodity will not fall much in consequence of a considerable increase in his supply of it; and a small fall in price will cause a comparatively large increase in his purchases.But if it is rapid, a small fall in price will cause only a very small increase in his purchases.In the former case his willingness to purchase the thing stretches itself out a great deal under the action of a small inducement: the elasticity of his wants, we may say, is great.In the latter case the extra inducement given by the fall in price causes hardly any extension of his desire to purchase: the elasticity of his demand is small.
If a fall in price from say 16d.to 15d.per lb.of tea would much increase his purchases, then a rise in price from 15 d.to 16d.would much diminish them.That is, when the demand is elastic for a fall in price, it is elastic also for a rise.
And as with the demand of one person so with that of a whole market.And we may say generally: - The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price.(1*)2.The price which is so high relatively to the poor man as to be almost prohibitive, may be scarcely felt by the rich; the poor man, for instance, never tastes wine, but the very rich man may drink as much of it as he has a fancy for, without giving himself a thought of its cost.We shall therefore get the clearest notion of the law of the elasticity of demand by considering one class of society at a time.Of course there are many degrees of richness among the rich, and of poverty among the poor; but for the present we may neglect these minor subdivisions.
When the price of a thing is very high relatively to any class, they will buy but little of it; and in some cases custom and habit may prevent them from using it freely even after its price has fallen a good deal.It may still remain set apart for a limited number of special occasions, or for use in extreme illness, etc.But such cases, though not infrequent, do not form the general rule; and anyhow as soon as it has been taken into common use, any considerable fall in its price causes a great increase in the demand for it.The elasticity of demand is great for high prices, and great, or at least considerable, for medium prices; but it declines as the price falls; and gradually fades away if the fall goes so far that satiety level is reached.
This rule appears to hold with regard to nearly all commodities and with regard to the demand of every class; save only that the level at which high prices end and low prices begin, is different for different classes; and so again is the level at which low prices end and very low prices begin.There are however many varieties in detail; arising chiefly from the fact that there are some commodities with which people are easily satiated, and others-chiefly things used for display-for which their desire is almost unlimited.For the latter the elasticity of demand remains considerable, however low the price may fall, while for the former the demand loses nearly all its elasticity as soon as a low price has once been reached.(2*)3.There are some things the current prices of which in this country are very low relatively even to the poorer classes; such are for instance salt, and many kinds of savours and flavours, and also cheap medicines.It is doubtful whether any fall in price would induce a considerable increase in the consumption of these.
The current prices of meat, milk and butter, wool, tobacco, imported fruits, and of ordinary medical attendance, are such that every variation in price makes a great change in the consumption of them by the working classes, and the lower half of the middle classes; but the rich would not much increase their own personal consumption of them however cheaply they were to be had.In other words, the direct demand for these commodities is very elastic on the part of the working and lower middle classes, though not on the part of the rich.But the working class is so numerous that their consumption of such things as are well within their reach is much greater than that of the rich; and therefore the aggregate demand for all things of the kind is very elastic.
A little while ago sugar belonged to this group of commodities:
but its price in England has now fallen so far as to be low relatively even to the working classes, and the demand for it is therefore not elastic.(3*)The current prices of wall-fruit, of the better kinds of fish, and other moderately expensive luxuries are such as to make the consumption of them by the middle class increase much with every fall in price; in other words, the middle class demand for them is very elastic: while the demand on the part of the rich and on the part of the working class is much less elastic, the former because it is already nearly satiated, the latter because the price is still too high.
The current prices of such things as rare wines, fruit out of season, highly skilled medical and legal assistance, are so high that there is but little demand for them except from the rich:
