Elasticity of Demand
Elasticity of demand measures how sensitive the quantity demanded of a product is to changes in price. If a small price change leads to a large change in demand, the product is said to have elastic demand. Conversely, if price changes result in only a small change in demand, it is inelastic. For example, luxury items often have elastic demand, while necessities like basic groceries tend to be inelastic. Understanding elasticity helps businesses and policymakers make informed decisions regarding pricing and supply.
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Elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in its price. If a small price change leads to a large change in quantity demanded, demand is considered elastic. Conversely, if price changes lead to little change in quantity demanded, demand is inelastic. For example, luxury items often have elastic demand because consumers can forego them when prices rise, while essential goods, like bread, tend to be inelastic as people need them regardless of price fluctuations. Understanding elasticity helps businesses and policymakers make informed decisions.