How Sensitive Are You to Price Changes?

Elasticity measures how much buyers and sellers respond to changes in prices or income. It's like asking, "If the price goes up, will people still buy it?"

Price Elasticity of Demand

This is the most common type. If a small price increase makes you stop buying something, demand is elastic. If you keep buying no matter what, it's inelastic.

• Elastic demand: Luxury goods, like concert tickets.
• Inelastic demand: Necessities, like insulin.

Price Elasticity of Supply

This shows how quickly producers can increase output when prices rise. If they can ramp up production easily, supply is elastic.

Other Types

• Income Elasticity: How demand changes as income changes.
• Cross-Price Elasticity: How demand for one thing changes when the price of something else changes.

Why Elasticity Matters

Elasticity helps businesses and governments predict what happens when they change prices or taxes. It affects everything from movie ticket pricing to cigarette taxes.