What is Elasticity?

Elasticity - the ability of a material to return to its original shape after being stretched or compressed. In economics, it refers to the responsiveness of demand or supply to changes in price or income.

Elasticity plays a crucial role in understanding consumer behavior and market trends. A product with high elasticity means that a small change in price will result in a significant change in demand, whereas low elasticity indicates that there will be little reaction to price changes.

Understanding the concept of elasticity is essential for businesses looking to maximize profits by setting optimal prices and adjusting their production levels accordingly. This knowledge also helps policymakers make informed decisions about taxes, subsidies, and regulations that may affect market outcomes.