Price elasticity measures the percentage change in quantity of supply or demand in response to a percentage change in price. It quantifies the responsiveness of market participants to price variations.
In the context of Life Cycle Assessment, price elasticity is important 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 candidates for marginal suppliers.
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.
Price elasticity 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.
As Chief Operating Officer, Iris leads our organisational development and oversees day-to-day operations. Before joining 2-0, she worked in the biotechnology sector. As an LCA consultant, Iris has devoted her expertise primarily to the domains of sustainable agriculture and food production. She is dedicated to teaching LCA and is responsible for our educational efforts. Iris holds an M.Sc. in Biology – Biotechnology from the University of Copenhagen.
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Glossary terms are clearer once you have seen them applied. Our guide to what LCA is and how it works walks through the complete methodology: goal and scope, inventory modelling, impact assessment, and interpretation.
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