ABSTRACT
This chapter discusses the economic concept of elasticity. Price elasticity considers how much the quantity demanded or supplied changes when prices change. For example, if the price of gasoline increases by 10 percent, how much less gasoline do consumers demand? You’ ll learn how to calculate elasticity mathematically. The relationship between the price elasticity of demand and the revenues of a business is discussed. Some real-world price elasticities of demand are presented. You will also learn about the income elasticity of demand—how demand changes when consumers’ incomes increase or decrease. Finally, the difference between the income and substitution effects of a price change is detailed.
