Economic Quick Tip: Elasticity

It is the measure of sensitivity of one variable to another. More specifically, it is the ratio of percentage change in one variable to a percentage change of another. Typically, it refers to the percentage change in quantity over the percentage change in price. When value is greater than one, demand is affected by price; when it is lower than one, the demand is said to be more insensitive to price. Typically, businesses prefer inelasticity as more consumers would be retained as price increases.  In relation to percentage changes in income, if elasticity is less than zero, a good/service is said to be inferior; alternatively, if income elasticity is greater than zero, the good/service is said to be normal.