Elasticity (economics)

responsiveness of one economic variable to a change in another (e.g. supply or demand as a function of changed price, cross-price, income, wealth, advertising, etc.), ranging from inelastic to elastic

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.

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