What Is Elasticity?

Elasticity is a measure of how responsive one variable is to changes in another. In economics, elasticity measures how responsive buyers and sellers are to changes in prices and income. Consumers respond to changes in prices and income when they decide how much of a good to buy. All other things held constant, when price falls, consumers demand more of a good. Similarly, when price rises, consumers demand less of a good. For example, if the price of gas falls, consumers will purchase more. If the price of gas rises, consumers will purchase less. This demonstrates the law of demand.

But how much do consumers respond to changes in price or changes in their income? Elasticities of demand can help explain how much consumers respond to changes in prices and income.