In economics, elasticity is the measure of how much buyers and sellers respond to changes in market conditions.
All price elasticity of demand have a negative sign, so it’s easiest to think about elasticity in absolute value.
When the elasticity is less than 1, we say that demand is inelastic.
Formula to calculate elasticity.
Example:
Suppose the percentage change of quantity demanded is 20% and the percentage change in price is 15%. Determine the elasticity of demand.
Thus, the elasticity of demand is 1.33.
