Economics of Software (Part 2): Elasticity of Demand Explained for Software Products

Just like any other products, even software products are 'elastic' to the demand. Let's learn to categorise different products based on their 'elasticity'.

Economics of Software (Part 2): Elasticity of Demand Explained for Software Products
I originally published this article on Mind the Product. This article only contains the excerpt of the original article, you can read the original article here.

This article is the 2nd part of the Economics of Software series. You can find the entire series below:

  1. Part 1: Why traditional economics concepts do not apply to software?
  2. Part 2: Elasticity of demand explained for software products
  3. Part 3: When to invest in the infrastructure?
  4. Part 4: Measuring the efficiency of product teams using the output curve

In the earlier part, we learned about demand, supply, and market equilibrium, how you could apply these concepts to software and how certain theories like the law of supply are not applicable. In this article, we will learn about elasticity, how you can apply it to software, and how it could benefit you?

What is the Elasticity of demand?

Here is the definition of Elasticity of demand:

In business and economics, elasticity refers to the degree to which individuals, consumers, or producers change their demand or the amount supplied in response to price or income changes.

Now you must be saying, ‘Enough of this textbook definition, what does it really mean?’

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