What is Elasticity of demand?

Elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price.

When the price of a good or service increases, the quantity demanded will decrease if the demand is elastic.

If the demand is inelastic, then the quantity demanded will stay the same despite a change in price.

An example of an elastic demand is the demand for a luxury good – the quantity demanded will decrease significantly if the price increases.

An example of an inelastic demand is the demand for a necessity – the quantity demanded will stay the same even if the price increases.

A product with a price elasticity of demand of 1 is considered unit elastic – in this case, a change in price will result in an equal change in quantity demanded.

Products with a price elasticity of demand of less than 1 are considered inelastic – in this case, a change in price will result in a smaller change in quantity demanded.

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