Editing Elasticity (economics) (section)

=== Price elasticity of demand ===
{{Main|Price elasticity of demand}}
<math>\frac{%\Delta qd}{%\Delta p}</math>

[[Price elasticity of demand]] measures sensitivity of demand to price. Thus, it measures the percentage change in demand in response to a change in price.<ref name=":2">{{Cite book|last=Webster|first=Thomas, J.|title=Managerial Economics: Tools for Analysing Business Strategy|publisher=[[Lexington Books]]|year=2015|isbn=978-1-4985-0794-3|location=Lanham, Maryland|pages=55, 70}}</ref> More precisely, it gives the percentage change in quantity demanded in response to a one per cent change in price ([[ceteris paribus]], i.e. holding constant all the other determinants of demand, such as income). Expressing this mathematically, price elasticity of demand is calculated by dividing the percentage change in the quantity demanded by the percentage change in the price.<ref name=":4">{{Cite book|last1=Layton|first1=Allan|title=Economics for Today|last2=Robinson|first2=Tim|last3=Tucker|first3=Irvin, B.|publisher=[[Cengage Learning Australia Pty Ltd]]|year=2016|location=South Melbourne, Victoria|pages=105}}</ref>

If price elasticity of demand is calculated to be less than 1, the good is said to be inelastic. An inelastic good will respond less than proportionally to a change in price; for example, a price increase of 40% that results in a decrease in demand of 10%.

Goods that are inelastic often have at least one of the following characteristics: 

* Few, if any, available substitutes (e.g. precious metals)
* Essential goods (e.g. petrol)
* Addictive goods (e.g. alcohol, cigarettes)
* Bought infrequently or a small percentage of income (e.g. salt)

For goods with a high elasticity value, consumers will be more sensitive to price changes. For the average consumer, an increase in price of an inessential good with many available substitutes will often result in that consumer not purchasing the good at all, or purchasing one of the substitutes instead.<ref>{{Cite web | url=https://www.britannica.com/topic/elasticity-economics | title=Elasticity &#124; economics &#124; Britannica }}</ref>
[[File:Example_showing_Elasticity_of_demand.jpg|center|thumb|400x400px]]
Example: In the above graphical representation which shows an effect of prices on demand. If the price of the pizza is $20 at which the quantity demanded is 5, if there is an increase in price of pizza to $30 it will lead to decrease in quantity demanded to 3 which shows that small changes in the price of pizza lead to higher changes in quantity demanded.