elasticity

When fuel price rises by ₦50, drivers still queue at the filling station because they have nowhere else to go for petrol. But when the price of sachet water rises by the same ₦50 on a pack, many buyers simply switch to filling a bottle from home. Same size of price change, two completely different reactions. That difference has a name, and economists call it elasticity.

Elasticity is just a way of measuring how sensitive people are to a price change. If demand barely moves when price rises, we say demand is inelastic, people need the thing regardless of cost. If demand falls sharply when price rises, we say demand is elastic, people have easy substitutes and walk away without much pain.

Fuel, rice, garri and data bundles in Nigeria tend to behave as inelastic goods because they sit close to daily survival and there are few easy replacements. Fashion items, restaurant outings and new phone models tend to be elastic, since people can postpone buying or choose a cheaper brand when price climbs.

This is why government decisions about taxing or subsidising things depend so much on elasticity. Raise tax on an inelastic good like fuel and government collects a lot of revenue because people keep buying anyway, though it hurts household budgets badly. Raise tax on an elastic good and people simply stop buying, so revenue does not rise as expected.

In the United Kingdom, this shows up when petrol duty rises and drivers grumble but keep driving, while a rise in the price of takeaway coffee sees many people calmly switch to a flask from home. A Nigerian abroad sending ₦100,000 home each month will keep sending it even if transfer fees rise slightly, because family need is inelastic, but they will shop around for a cheaper remittance app if the fee rises too much, because that choice is more elastic than it looks.