ABSTRACT
This chapter discusses the principles on which the elasticity modal is based; underlying assumptions; guidance on application, and relevant issues; and related models. The model may be used to predict likely response of suppliers or customers to changes in price that the organization is willing to pay or intends to charge, customers. Elasticity measures the sensitivity of demand or supply of goods to percentage changes in the price of the goods or to changes in the income available to purchase the goods. Price elasticity of demand is inelastic if demand elasticity is between -1 and 0. Inferior goods have negative income elasticities of demand because high incomes reduce quantity demanded and budget share of goods. Cross-price elasticities of demand or supply measure sensitivity of quantity of goods demanded or supplied to changes in the price of related goods. An appreciation of elasticity assists in making decisions regarding entry into new markets or launching new products.
