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Elasticity


Elasticity is an economic measure of how sensitive one factor is to another. If one factor is relatively unchanged compared to another, it is inelastic. Inelastic factors have a coefficient of elasticity that is less than one, while elastic factors have a coefficient of elasticity greater than one.

The most commonly used measure of elasticity is the sensitivity of the change in price relative to changes in another variable. Therefore, elasticity measures the change in consumer, individual, business, or producers demand relative to the change in price or income.

As an example, a good like water will likely have price-inelastic demand, because people will continue demanding water regardless of its price. Other goods, such as candy or luxury vehicles will likely have higher price elasticity. If the price of a specific candy bar rises, many consumers will switch to buying others. Goods are often price-elastic if there are easily available subsitutes and a competitive market for the good. On the other hand, monopolized markets experience price inelasticity.