Elastic

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DEFINITION of 'Elastic'

A situation in which the supply and demand for a good or service can vary significantly due to the price. The elasticity of a good or service can vary according to the amount of close substitutes, its relative cost and the amount of time that has elapsed since the price change occurred.

BREAKING DOWN 'Elastic'

Companies that operate in very fierce and competitive industries provide goods or services that are very elastic because these companies tend to be price takers. For example, the airline industry is very elastic because all airlines offer a very similar service (getting passengers from point A to point B). For the most part, an airline company can't have prices that are significantly different from those of its competitors because this can result a huge loss of business to competitors.

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