elasticity and consumer behavior

Elasticity measures how sensitive consumers are to changes in price. If a small price change leads to a big change in the quantity people buy, the product is considered elastic. For example, luxury items usually have higher elasticity; if the price rises, people often buy less. In contrast, essential goods, like bread or medicine, are inelastic; price changes don’t significantly affect demand. Understanding elasticity helps businesses and policymakers predict how consumers will react to price changes, allowing them to make informed decisions about pricing, production, and marketing strategies.