Price Elasticity

Today's big economic news was the April New Home Sales report. A monstrous monthly increase was reported (+16.2%), the highest gain in 14 years. At the same time, the report also shows how the median sales price nationwide declined 10.9% from the same period a year ago and over 11% from last month. Click here for the report. What i find unique is that there is no mention of the natural economic ebb and flow that is called supply and demand, and how PRICING impacts the two. Elasticity of demand says that demand falls as prices rise, and vice versa. In our example with the new home sales, as home prices fell, demand increased dramatically. There are many buyers still on the sidelines in many markets, patiently waiting for home prices to come down as they have been frozen out of the market due to soaring prices over the past decade. Now that they experienced some relief, they decided to jump at the opportunity. It may not be to the benefit of Toll Brothers, or Centex Homes, but the fact that they had to slash prices to move inventory is a benefit to buyers. Contrast the demand for homes example to the demand for gasoline. In the short run, demand for gas is inelastic, as i need to get to work each and every day, and if my vehicle is a gas guzzler, I have no choice but to fill up at current rates. It takes time for me to either change my habits, or to buy a more fuel efficient car. There are many goods and services i will pay for, and accept price increases, if they happen to be something that fulfills a need or want of mine and there is no price that will keep me away from it. (Think cigarettes for those who smoke). This is inelastic demand in its purest form. Of course at some price point, habits, desire, needs, and wants will change, and then we will have traveled the continuum of price inelasticity to elasticity.