Definition of «elasticity»

Usage examples

1. The price elasticity of demand measures the responsiveness of consumers to changes in the price of a product. For example, if a small increase in the price of a luxury item leads to a large decrease in the quantity demanded, we say that the demand for that product is elastic.
2. The cross-price elasticity of demand indicates how the quantity demanded of one product changes in response to a change in the price of another product. For instance, if a decrease in the price of smartphones leads to a significant increase in the demand for phone cases, we say that the cross-price elasticity of demand between smartphones and phone cases is positive.
3. Income elasticity of demand measures the sensitivity of consumers' demand for a product to changes in their income levels. For instance, if an increase in income leads to a relatively small increase in the demand for basic necessities like food and clothing, but a substantial increase in the demand for luxury goods like vacations or high-end electronics, we say that the income elasticity of demand for luxury goods is greater than one.
4. Elasticity of supply refers to the responsiveness of producers to changes in the price of a product. If a small increase in the price of a product leads to a significantly larger increase in the quantity supplied, we say that the supply of that product is elastic.
5. Elasticity of substitution refers to the ease with which one factor of production can be replaced by another. For example, if a firm can easily switch between using labor and capital in the production process without a significant impact on output, we say that the elasticity of substitution between labor and capital is high.