As people’s preferences shift (due to popularity, season, politics, etc.), so does the quantity demanded of a certain good. For instance, in winter there’s a high demand for snow boots, but in summer there’s a low demand. The price elasticity of demand is a measure of how much the quantity demanded will change for a given good if there’s a change in price. Naturally, different goods will have different price elasticities because some goods are more/less dependent on price.
Take, for example, emergency medical services, like the ambulance. When you have a medical emergency, you have to pay to use the ambulance. If the cost of an ambulance increases, there will be very little change in the demand for ambulance services, since it’s a life-saving service that many cannot do without. In this case, there are no substitutes for an ambulance. A higher cost for the service will not result in a significant decrease in its demand. Therefore, ambulances can be said to be price inelastic (not responsive to price).
On the other hand, consider cars in a metropolitan area. If the price of cars is low, more people are likely to buy a car. If the price is high, fewer people will buy cars because it’s cheaper to ride the subway, bike, or walk. These other options are substitute goods for a car – when the price of a car rises, people will substitute another form of transportation for having a car. Therefore, cars in this situation can be considered price elastic (responsive to price).
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