Elasticity (economics)
In economics, people talk about elasticity of an economic variable, usually supply or demand, in relation to another economic variable such as income or price. The elasticity of a variable is a measure of how much the variable changes in response to a change in a second variable.
If the price for a good with a price-elastic demand goes up, the demand for it will go down. For example, people will buy fewer DVDs if DVDs get more expensive − DVDs have a price-elastic demand.
If a good has a completely price-inelastic demand, the demand for it will not be affected by the price of it. For example, if the price of salt increases, people will not buy less of it. They need their daily salt intake. The demand of salt is therefore price-inelastic.
Elasticity is often measured in percents. If a 2% increase in price causes people to buy 1% fewer of a product, it has a price elasticity of demand of -0.5.
Elasticity (economics) Media
Principles of Economics (1890) -- Alfred Marshall
Formula for price elasticity of demand
The pizza is taken as an example to illustrate the elasticity of demand as the pizza has a elastic demand which means a small change in the price of Pizza will lead to high change in the demand of the pizza.
Calculating the price elasticity of supply
Formula for cross-price elasticity
Perfect P-elasticity of Q: P is constant as Q changes
Perfect P-inelasticity of Q: P changes while Q = constant
Conventional demand curve (downwards linear slope), with its elasticity
Example of demand curve with constant elasticity
Examples of supply curves with different elasticity
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