Elasticity

Elasticity refers to the measure of how much the quantity demanded or supplied of a good changes in response to a change in price or other factors. It is commonly expressed as a percentage change. Elasticity can be categorized into different types:

• Price Elasticity of Demand: Measures how the quantity demanded changes as the price changes. For example, if the price of a smartphone decreases by 10% and the quantity demanded increases by 20%, the Price Elasticity of Demand is -2 (20% / -10%).
• Price Elasticity of Supply: Measures how the quantity supplied changes as the price changes. For example, if the price of oranges rises by 15% and the quantity supplied increases by 5%, the price elasticity of supply is 1/3 (5% / 15%).
• Income Elasticity of Demand: Measures how the quantity demanded changes as consumer income changes. For example, if consumer income increases by 10% and the quantity demanded for luxury cars increases by 25%, the income elasticity is 2.5 (25% / 10%).
• Cross-Price Elasticity of Demand: Measures how the quantity demanded of one good changes in response to the price change of another good. For example, if the price of coffee increases by 10% and the quantity demanded for tea increases by 5%, the cross-price elasticity is 0.5 (5% / 10%).