Elasticity of Demand

Elasticity of demand measures people's sensitivy to changes in the price of a product or service. Essentially, it gauges how much customers react when prices go up or down. If demand is elastic, a small price change can lead to a big change in the quantity demanded. If demand is inelastic, price changes have little impact on the quantity demanded. For instance, if the price of essential medications rises, you'll likely still buy them because you need them, even if it costs more. Elasticity helps businesses and policymakers understand how consumers respond to price changes, which can guide pricing strategies and inform decisions like taxation.