PRICE ELASTICITY (OF WATER)

Defined as the ratio of the percent change in the quantity demanded of water (or any other economic good) and the percent change in price, or nwater = Percent Change in Qwater / Percent Change in Pwaternwater = Percent Change in Qwater / Percent Change in Pwater An elastic demand results when the ratio of nwater is greater than unity (>1), implying that a given change in price will result in a greater (percentage) change in the quantity demanded. Under such conditions of "elastic demand" for water, consumers tend to be responsive to changes in the price for water. Conversely, an inelastic demand results when the ratio of nwater is less than unity (<1), implying that a given change in price will result in a smaller (percentage) change in the quantity demanded. Under such conditions of "inelastic demand," consumers are relatively unresponsive to changes in the price for water. Along any given (downward sloping) demand curve, the elasticity will vary from inelastic, to unity, to elastic as the price rises further.