Price Elasticity of Demand in Australia: 2025 Insights & Examples

When you spot a price drop on your favourite coffee beans or notice a sudden jump in petrol prices, you’re feeling the real-world effects of price elasticity of demand. In 2025, as Australians navigate inflation, shifting consumer preferences, and new government policies, understanding price elasticity isn’t just for economists—it’s essential for everyone from small business owners to everyday shoppers.

What Is Price Elasticity of Demand (PED)?

Price elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in its price. If a small price change leads to a big shift in demand, the product is considered elastic. If demand barely budges, it’s inelastic.

• Elastic Demand: Luxury items, non-essentials, or products with many substitutes—think electronics, streaming services, or brand-name clothing.

• Inelastic Demand: Necessities like electricity, fuel, or bread—goods we buy regardless of price changes.

Why does this matter in 2025? Because changing economic conditions, new taxes, and evolving supply chains are making price sensitivity more important than ever for households and businesses alike.

Price Elasticity in Action: 2025 Examples from the Aussie Market

This year, Australians are witnessing PED play out in some fascinating ways:

• Petrol Prices: Following the global oil supply disruptions early in 2025, petrol prices surged. Despite the cost increase, most commuters haven’t cut back significantly on fuel usage. Petrol remains a classic example of inelastic demand, especially outside metro areas where public transport options are limited.

• Streaming Subscriptions: With multiple platforms increasing prices, many households are cancelling or rotating subscriptions. Here, demand is elastic—price rises lead to sharp drops in subscriber numbers, forcing platforms to rethink their pricing strategies.

• Fresh Produce: Extreme weather in early 2025 led to higher fruit and veggie prices. While some shoppers switched to frozen or tinned alternatives (showing elasticity), demand for staples like potatoes and onions stayed strong, revealing their inelastic nature.

These examples show how PED isn’t static. It shifts with consumer preferences, available alternatives, and broader economic forces.

Policy Shifts and PED: What’s New in 2025?

Australian government policy is also shaping how price elasticity plays out across the economy:

• GST Adjustments: The federal government’s decision to maintain the GST at 10% but expand its base to include more digital services has made some digital goods more price sensitive. As a result, demand for these newly taxed services has shown high elasticity, with consumers quickly seeking alternatives or cutting back.

• Energy Subsidies: New 2025 energy rebates for low-income households are reducing the effective price of electricity for some. This has slightly increased the elasticity of demand, as households become more responsive to price changes when subsidies are in play.

• Carbon Pricing: With the reintroduction of a modified carbon price in mid-2025, businesses in high-emission sectors (like transport and manufacturing) are re-evaluating their pricing. Products with more elastic demand are seeing smaller price hikes, as companies fear losing customers to substitutes.

For both businesses and policymakers, understanding PED is key to predicting consumer reactions and designing effective price strategies.

How Australians Can Use PED Insights for Smarter Decisions

Whether you’re a consumer trying to save on household expenses or a business owner setting prices, PED can be your financial compass:

• For Shoppers: Look for elastic products—retailers may run promotions or discounts, giving you more bang for your buck. If you’re facing inelastic prices (like for fuel), consider efficiency upgrades or alternatives where possible.

• For Businesses: Use sales data and feedback to identify which products are most price sensitive. In 2025’s competitive market, even small price changes can have a big impact on revenue if your customers are elastic.

• For Investors: Companies selling mostly inelastic goods often have steadier revenues, even during downturns. Understanding PED can help spot resilient stocks in uncertain economic times.

With inflation and global uncertainty still in the headlines, price elasticity isn’t just a textbook term—it’s shaping how Australians spend, save, and strategise in 2025.