Unformatted text preview: Elasticity in the Real World The Substitution Effect We've seen how elasticity can affect changes in price and quantity in a market economy on a graph, but does this actually happen in the real world? While it is unlikely that demand for very many goods is perfectly elastic or perfectly inelastic, economists recognize that demand for certain goods will be more elastic than others, and demand for certain goods will be less elastic. So, while the extreme cases are pretty rare, elasticity still has some effect over market behavior. Goods with very elastic demand tend to be non-necessary goods, or goods that cane be easily substituted for by other goods. When the prices of these goods go up, consumers will either decide they don't really need the goods, and won't buy any, or they will begin to substitute away from the goods, buying more of the cheaper substitutes. One possible example of a non-essential good might be candy. It is not an essential good, and if the price were to double, demand would good might be candy....
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- Fall '08