Glossary · Economic ideas
Elasticity
Elasticity measures how strongly one thing reacts to another, most often how much the amount people buy changes when the price changes.
Also called: price elasticity of demand, price elasticity, elastic demand, inelastic demand, income elasticity
Average price $3.05 → $4.09 a gallon. Gasoline used: −0.1%.
In plain words
If your favorite chocolate bar gets 20% dearer, you might switch to another brand. If gasoline gets 20% dearer, you still have to drive to school or work. How much buyers react to a change in price is the price elasticity of demand.
When buyers react a lot, demand is elastic: a small price rise drives many away, usually because good substitutes exist. When they barely react, demand is inelastic: the thing is a necessity, has no close substitute, or is a tiny part of the budget, like salt.
It is measured as the percent change in the quantity bought divided by the percent change in price. Price up 10% and sales down 20% gives an elasticity of −2: elastic. Sales down 2% gives −0.2: inelastic.
Example
Gasoline: inelastic now, less so later
Gasoline is the textbook case of inelastic demand in the short run, and the US data show it.
- In 2022 the average US price of a gallon jumped from $3.05 to $4.09: +34%.
- Yet the amount of gasoline Americans used changed by only −0.1%: people still had to get to work.
- Over several years buyers can adapt. After the oil shock of 1979, between 1978 and 1982 the price after inflation changed by +31% and gasoline use by −12%: an elasticity of about −0.4.
- Cars changed too: the average vehicle on US roads went from 12.4 miles per gallon in 1978 to 19.2 in 2024.
Demand is usually more elastic in the long run than in the short run: people need time to change their habits and their cars.
One level deeper
Elasticity matters to sellers because it decides what a price rise does to their revenue. With inelastic demand, a higher price brings in more money, since sales fall by less than the price rises; with elastic demand, it brings in less. That is why taxes on cigarettes and gasoline raise a lot of money, and why stores run sales on goods whose demand is elastic.
Economists measure other elasticities too: income elasticity (how purchases change as incomes rise; spending on luxuries rises faster than incomes), cross-price elasticity (how the demand for tea changes when coffee gets dearer) and the elasticity of supply (how fast producers can make more when the price rises).
Studies of US gasoline put the short-run elasticity somewhere between about −0.03 and −0.3, and the long-run one several times larger. The rough numbers above also mix in other forces, such as recessions and the pandemic, so they are illustrations, not estimates.
Gasoline: the price swings, use moves slowly
The price of a gallon after inflation and the amount of gasoline Americans used, each set to 100 in 1976. The price line lurches up and down; the line for gasoline used moves slowly, growing with the population and dipping in the early 1980s, after 2008 and in 2020, when people stayed home.
The numbers behind the chart
| Date | Price of a gallon, after inflation | Gasoline used |
|---|---|---|
| 1976 | 100 | 100 |
| 1980 | 140 | 94 |
| 1990 | 83 | 104 |
| 2000 | 81 | 121 |
| 2010 | 118 | 129 |
| 2020 | 78 | 115 |
| 2021 | 104 | 126 |
| 2022 | 130 | 126 |
| 2023 | 111 | 128 |
| 2024 | 102 | 128 |
| 2025 | 94 | 128 |
Why it matters
It decides who really pays a tax: the side that can’t easily walk away, such as buyers of gasoline, ends up bearing most of it.
Businesses use it to set prices: raising the price of something people can’t do without brings in more money, while raising it on something with many substitutes loses customers.
It explains why oil and food prices swing so wildly: when neither buyers nor sellers can adjust quickly, a small shortage moves the price a lot.
A common mistake
Myth: When prices go up, people cut back on everything in the same way.
In fact: Reactions differ enormously. A 20% rise in the price of one brand of soda can cut its sales by a third or more, while a 20% rise in the price of gasoline or insulin barely changes how much people buy in the short run.
Questions people ask
What does it mean if demand is inelastic?
That buyers barely change how much they buy when the price changes: an elasticity between 0 and −1. Gasoline, electricity, medicines and salt are examples, at least in the short run.
How do you calculate price elasticity of demand?
Divide the percent change in the quantity bought by the percent change in price. Price +10%, quantity −5%: −5 ÷ 10 = −0.5, inelastic. Beyond −1 (say −2), demand is elastic.
Is gasoline elastic or inelastic?
Inelastic, especially in the short run. In 2022 the average US price changed by +34% while gasoline use changed by −0.1%. Over the years, people switch to more efficient cars and demand becomes more elastic.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US motor gasoline product supplied (consumption): U.S. Energy Information Administration, Monthly Energy Review, October 2026 edition (released October 29, 2026), Table 3.5 Petroleum Products Supplied by Type, series MGTCPUS.
- Gasoline, unleaded regular, per gallon: U.S. Bureau of Labor Statistics, Consumer Price Index, Average Price Data (U.S. city average), series APU000074714; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US motor vehicles: miles, fuel and fuel economy per vehicle: U.S. Energy Information Administration, Monthly Energy Review, October 2026 edition (released October 29, 2026), Table 1.8 Motor Vehicle Mileage, Fuel Consumption, and Fuel Economy (from the Federal Highway Administration, Highway Statistics).
- Yearly averages. The gasoline price is the BLS average for regular unleaded in US cities; months without a published price are left out. Gasoline used is EIA’s product supplied, which includes the ethanol blended in. The amount used also moves with incomes, recessions, population and, in 2020, the pandemic, so the elasticities here are rough illustrations.
- This page explains a term. It is not investment advice.