What Is Elasticity?
elasticity is a measure of a variable's reaction to a change in another variable. it can describe the extent to which the supply or demand for a good or service changes with the price of goods or consumer income. we calculate elasticity with the following. a result greater than or equal to one means that a good or service is elastic. less than one means that a good or service is inelastic. necessities such as milk and gasoline usually have low elasticity. this is because it takes a meaningful change in price or consumer income to change in the amount demanded. luxury goods such as high end vehicles and electronics are set to have high elasticity. this is because a small change in the price of these items can lead to a big change in demand from both consumers and producers. in a stagnant economy in which consumers have a limited amount of income to spend, demand is more sensitive to price and thus elasticity is greater. when an item has many possible substitutes, it's demand will be more elastic. for example, if the price of cookies increase dramatically, consumers could easily substitute candy or ice cream to satisfy their desire for sweets. on the other hand, when an item has few substitutes like gasoline , it's demand will be less elastic, since many consumers will still buy it regardless of the price.