Food Price Elasticity

How It Works

Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. A value between 0 and -1 is "inelastic" (demand barely responds to price), while values beyond -1 are "elastic" (demand responds strongly). Most basic food items are inelastic, the USDA estimates ground beef has an own-price elasticity of about -0.75, meaning a 10% price increase reduces demand by only 7.5%. Bread and cheese are even more inelastic at around -0.30 to -0.50. Fresh produce like lettuce and tomatoes is slightly more elastic at roughly -0.80 to -1.10 because consumers can easily substitute other vegetables. Food as a whole category has lower price elasticity than most consumer goods because eating is non-optional. However, within food categories, brand elasticity is much higher, consumers readily switch between Kraft and store-brand cheese, or between grocery chains. Cross-price elasticity (how demand for one product responds to another's price change) shows that ground beef and ground turkey are strong substitutes with positive cross-elasticity.

Related Terms

• Substitution Effect, The tendency of consumers to switch from a product that has become more expensive to a cheaper alternative that serves a similar purpose.
• Input Costs, The costs of raw materials, labor, energy, and other resources that go into producing a finished product, rising input costs are a primary driver of food price inflation.
• Food Expenditure Share, The percentage of household income or total spending devoted to food, lower-income Americans spend roughly 30-35% of income on food versus 8-10% for higher-income households.