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Elasticity |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Elasticity is an economic metric used to determine how quickly one value will react to a change in another value. For example, the "price elasticity of demand" will measure the percent change in quantity demanded, given a specific change in the price. Generally, elasticity is a measure of how responsive one economic metric is to a change in another economic metric.
Companies can use elasticity to gain a better knowledge of the demand curve they are facing. That is, they can use elasticity to determine how their customers will likely react when they change their prices.
'Interpretations of Elasticity:" Elasticity can also give insight into the type of goods or services that are being considered. In most cases goods that have few or no substitutes are considered to be relatively inelastic. These goods would have an elasticity coefficient less than one, meaning that a change in price will result in a relatively smaller change in the quantity demanded. On the other hand, goods that have many substitutes are considered relatively elastic, and will have an elasticity coefficient greater than one. This means that a 1% change in the price would result in a change in the quantity demanded of greater than 1%.
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