Where f represents the future price of a commodity; δF represents the change level of commodity prices in the future; C represents the spot price of goods; δC represents the change level of spot commodity prices.
The concept of price expectation elasticity was put forward by British economist J.R. Hicks 1939. He pointed out: people will predict the future price according to political news, current and recent economic events, popular public opinion and the experience of past price changes, and make purchase decisions according to the comparison between the expected price and the current price: buy more when the price is low, and buy less when the price is high.
The elasticity of price expectation reflects the buyer's attitude towards the spot price increase. The relationship between them can be expressed in the following table:
Price expectation elasticity affects demand: if the buyer's price expectation elasticity is greater than 1, the increase of spot price will lead to the increase of demand; Elasticity is less than 1 or negative, and the increase of current price will lead to the decrease of demand; Elasticity is equal to 1, and the current price change has no effect on demand at all. For example, if the current price increases by 10%, the buyer's estimate of the future price is also revised to increase by 10%, and the ratio of the current price to the future price remains unchanged. In this way, consumers do not need to change the distribution of purchases during the whole period.
The elasticity of price expectations also affects supply: when producers know that the current price is rising, they should consider arranging supply to the market. If the producer's expected price elasticity is greater than 1, he will withhold the supply of goods to enjoy the expected higher future price; Elasticity is less than 1 or negative, and he is willing to sell more goods at present, so as to avoid the expected future lower price bringing economic losses to the enterprise.