Price elasticity measures the percentage change in quantity of supply or demand in response to a percentage change in price. This fundamental economic concept quantifies the responsiveness or sensitivity of market participants to price variations, providing essential information for understanding how markets adjust to changing economic conditions.
In the context of Life Cycle Assessment, price elasticity plays a crucial role in consequential LCA modelling. When assessing the environmental consequences of changes in demand for a product, understanding price elasticity helps identify which activities and production volumes will actually change in response to the demand shift. Activities with high price elasticity of supply respond strongly to price changes, making them more likely to be the marginal suppliers that adjust production volumes when market demand changes.
Price elasticity can be calculated for both supply and demand sides of a market. Supply elasticity indicates how readily producers can increase or decrease production in response to price changes, whilst demand elasticity shows how consumer purchasing behaviour changes with price variations. Products with elastic demand or supply exhibit large quantity changes for small price changes, whereas inelastic products show relatively stable quantities despite price fluctuations.
The concept is particularly relevant when determining which activities should be included in a consequential product system. Unconstrained activities with elastic supply are typically better candidates for responding to marginal changes in demand than constrained activities with inelastic supply, which operate at or near capacity regardless of price signals. Understanding these market dynamics ensures that LCA models accurately reflect the real-world consequences of changes in product demand.
