Overview
Elasticity in market dynamics is a crucial concept that helps economists and businesses understand how changes in price affect consumer behavior and market supply. By measuring the responsiveness of demand and supply to price changes, elasticity provides insights into market efficiency and consumer ...
Key Terms
Example: If the price of a product increases by 10% and demand decreases by 20%, the elasticity is -2.
Example: A price elasticity of -1.5 means a 1% increase in price leads to a 1.5% decrease in demand.
Example: Necessities like insulin have inelastic demand; price changes do not significantly affect quantity demanded.
Example: Luxury items often have elastic demand; a price increase can lead to a significant drop in sales.
Example: If income increases by 10% and demand for luxury cars increases by 20%, the income elasticity is 2.
Example: If the price of coffee rises and the demand for tea increases, they are substitutes with positive cross elasticity.