Overview
Elasticity is a fundamental concept in economics that measures how responsive demand is to changes in price or income. Understanding elasticity helps businesses and policymakers make informed decisions about pricing, taxation, and market strategies. Different types of elasticity, such as price, inco...
Key Terms
Example: The price elasticity of demand measures how much the quantity demanded changes when the price changes.
Example: If a 10% increase in price leads to a 20% decrease in quantity demanded, the price elasticity is -2.
Example: Luxury goods often have a high income elasticity, meaning demand increases significantly as income rises.
Example: If the price of coffee rises and the demand for tea increases, they are substitutes.
Example: Necessities like insulin have inelastic demand.
Example: Luxury items often have elastic demand.