Ever wondered why your favourite café’s flat white costs more after a bean shortage, but the price of streaming services barely budges despite subscriber surges? The answer lies in the concept of demand elasticity—a force that’s quietly dictating prices across the Australian economy, and shaping our financial decisions in 2025.
What Is Demand Elasticity? Why Should Australians Care?
In simple terms, demand elasticity measures how sensitive consumers are to price changes. If a small price hike makes you run for alternatives, that product is said to have elastic demand. If you keep buying regardless, demand is inelastic. This concept isn’t just for economists—it’s crucial for anyone budgeting, investing, or running a business in today’s fast-changing Australia.
- Elastic demand: Luxury holidays, restaurant meals, non-essential tech gadgets.
- Inelastic demand: Electricity, petrol, staple foods, and prescription medicines.
Understanding these patterns helps you anticipate price movements and spot value, whether you’re a consumer or a small business owner.
Elasticity in Action: 2025’s Real-World Examples
Let’s look at how demand elasticity is shaping Australian spending right now:
- Groceries: The 2024–25 supply chain disruptions saw fruit and vegetable prices spike. Yet, shoppers cut back on pricier organic produce, proving its demand is elastic. But demand for basics like milk and bread barely changed—classic inelastic goods.
- Energy Bills: In 2025, the federal government’s energy relief rebates and increased solar uptake are making electricity bills more affordable. However, for most households, demand for power remains inelastic—people can’t easily cut usage, so price hikes still bite.
- Streaming & Subscriptions: As Netflix and Spotify introduced modest price rises, many Australians grumbled but stayed put. The reason? The abundance of content and lack of true substitutes makes demand less elastic than you’d expect.
Knowing which goods and services are elastic (or not) helps you predict which household costs will balloon—and where you can tighten your belt with the least pain.
2025 Policy Updates: Elasticity, Inflation, and Your Bottom Line
Governments and businesses are watching demand elasticity closely as Australia navigates inflation and cost-of-living pressures in 2025. Here’s what’s changed:
- GST and Tax Adjustments: With inflation expected to hover above the RBA’s target band, Treasury is reviewing GST exemptions on essential goods—where demand is inelastic—to avoid regressive impacts on low-income households.
- Supermarket Price Caps: The ACCC’s ongoing investigation into supermarket price gouging is partly driven by the inelastic demand for everyday essentials. Policy makers are considering targeted price controls where consumers have few alternatives.
- Fuel and Transport: As petrol prices remain volatile, the government’s EV subsidy expansion is designed to nudge drivers toward more elastic transport choices and reduce dependence on inelastic fossil fuels.
For investors, sectors with inelastic demand—like utilities and healthcare—are often seen as safer bets during economic turbulence. For households, knowing where you can switch brands or cut back (elastic goods) versus where you’re stuck (inelastic goods) can help you manage rising costs.
How to Use Demand Elasticity in Your Financial Strategy
So, what does all this mean for your wallet in 2025?
- Budgeting: Prioritise spending cuts in areas where your demand is most elastic—think dining out, premium brands, and streaming subscriptions.
- Negotiating: Use your power as a consumer. For elastic goods, shop around, ask for discounts, or switch providers—especially for insurance, telcos, and non-essentials.
- Investing: Diversify into sectors with inelastic demand if you want stability, but look to elastic sectors for growth when the economy rebounds.
Demand elasticity isn’t just an academic concept—it’s a practical tool for navigating Australia’s dynamic 2025 economy.
