Measuring consumer response
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Economists are interested in how a rise in a product's price affects its consumption. Let p denote the unit price of the good and D its demand (or the quantity ordered over a reference period); in general, an increase Dp in the price leads to a decrease DD in the quantity ordered. This response of demand could be measured by the ratio DD / Dp, but this number has two drawbacks. First, it clearly depends on the units in which the two variables are expressed (for example, euros or dollars for p, and kilograms or tonnes for D).
Furthermore, the same ratio can describe different economic situations. For example, suppose the price changes from 2 to 3 units (a 50 % increase), while demand falls either from 10 to 4 (a 60 % decrease) or from 1,000 to 994 (a 0.6 % decrease). In both cases, the ratio in question is –6, but demand is affected differently: it remains virtually unchanged in the second situation, whereas it changes substantially in the first. The right concept to introduce is elasticity.
Cournot, a pioneer
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