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elasticity of demand

In your own words without quoting anyone:

1. What is elasticity of demand and how is the notion used in economics? Please explain and elaborate.

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Elasticity of demand, in layman terms, can be simply defined as the change in quantity demand due to change in price. In other words, it explains how change in prices (both upwards and downwards) lead to change in the quantity demanded of a product or service. It is simply calculated as (% Change in Quantity Demanded)/(% Change in Price).

To understand further, if the price elasticity is greater than 1, it means that the demand for the product/service is price elastic or sensitive to price changes. Similarly, if it is lesser than 1, then demand is not sensitive to price changes or it is price inelastic

If elasticity is perfect 1, then the demand for product is unit elastic.

There are numerous factors that determine elasticity of demand, ranging from available substitutes for a product, necessity of the good, ...

Solution Summary

What is elasticity of demand and how is the notion used in economics? Please explain and elaborate.

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