What is Elasticity?
- Elasticity is the percentage change in quantity demanded or supplied as a result of a one percent change in price.
How Do I Remember It?
- Think of elasticity as the “stretchiness” of demand or supply in response to price changes. It’s like how a rubber band stretches more if you pull it harder.
Real World Example
- In the airline industry, if the price of airfare increases by 10% due to factors like high demand during holiday seasons, and as a result, the number of tickets sold decreases by 5%, this indicates that airfare has an elasticity of demand of -0.5. In simpler terms, for every 1% increase in price, the quantity demanded decreases by 0.5%
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