Explain Price Elasticity of Demand

Answer 1

Well, the definition of elasticity (in the context of economics) is a fluctuation in consumer demand relative to changes in price. A product is considered elastic if a small price change has a large impact on demand (ratio of +1), and vice versa; it is considered inelastic if change in price has little impact on demand (ratio of -1). It is usually compared to a rubber band.

Now, elasticity of demand is based on several factors on whether or not it is elastic:

Availability of substitutes: electricity or no electricity, this or that Pizza joint

Relative Importance: simply, opportunity cost.

Necessity vs. Luxury: Necessity is inelastic whereas luxury is elastic.

Change over Time: market doesn't always change quickly.

Marketing techniques: techniques to sell product, such as endorsements, humor, beauty appeal, etc.

If anyone can help to make this more clear, please do so.