Elasticity

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What is 'Elasticity'

Elasticity is a measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which individuals (consumers/producers) change their demand/amount supplied in response to price or income changes.

Calculated as:

Elasticity

BREAKING DOWN 'Elasticity'

Elasticity is used to assess the change in consumer demand as a result of a change in the good's price. When the value is greater than 1, this suggests that the demand for the good/service is affected by the price, whereas a value that is less than 1 suggest that the demand is insensitive to price.

Businesses often strive to sell/market products or services that are or seem inelastic in demand because doing so can mean that few customers will be lost as a result of price increases.

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RELATED FAQS
  1. Under what circumstances might price elasticity significantly change?

    Discover under what circumstances price elasticity of demand might change and why it is such an important economic concept ... Read Answer >>
  2. How do you quantify price elasticity?

    Learn how to calculate the coefficient for price elasticity, enabling you to approximate how sensitive supply and demand ... Read Answer >>
  3. If a particular good's price elasticity is high, does this mean the supplier should ...

    Learn the basics of price elasticity of supply and demand and how each influences a company's production of goods and pricing ... Read Answer >>
  4. What are some examples of demand elasticity other than price elasticity of demand?

    Learn about income elasticity of demand and cross elasticity of demand and how to interpret these two measures of demand ... Read Answer >>
  5. How does price elasticity change in relation to supply and demand?

    Learn about how variations in price elasticity affect the supply and demand curves and what factors cause differences in ... Read Answer >>
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