is the reaction of the
quantity supplied or demanded to price changes. The degree of change in demand
or supply depends whether the good is a necessity or a luxury. Gasoline for
example is inelastic since consumers would keep filling their tanks to go to
whichever place they needed to go. However, through time, when consumers realize
their disposable income is squeezed because of a now much higher price of gasoline,
they would minimize their driving only to go to work and a few important errands.
Luxuries in times when the economy is rough doesn't sell well and are immediately
replaced by the closest and cheapest substitute available. The degree of elasticity
of a luxury item increases when there are more substitutes for it. Examples
of highly elastic goods are vehicles, cheaper cars would be the primary choice
when prices of luxury vehicles become too expensive. A simple example of substitutes
would be butter and margarine, chicken and beef, candles and flashlights or
a banana leaf and toilet paper.