Unit 3: Elasticity Our mission is to provide a free, world-class education to anyone, anywhere. Khan Academy is a 501 (c) (3) nonprofit organization. Donate or volunteer today!
Learn about the price elasticity of demand, a concept measuring how sensitive quantity is to price changes. Elasticity is calculated as percent change in quantity divided by percent change in price.
An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. An inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes.
Elasticity of demand is not the slope of the curve. The percentage part of the equation is crucial. Use the formula Sal gives and test it by yourself. On a straight line, elasticity will be highest near the vertical axis and get more and more inelastic as you move toward the horizontal axis.
Elasticity is a general term, referring to percentage change of one variable divided by percentage change of a related variable that can be applied to many economic connections.
So we define elasticity of supply, we define it as percent change in quantity over percent. The Greek letter delta, this triangle, that's just shorthand for change, percent change in price.
Now, it's important to note that the elasticity of demand, or actually supply, is not always constant for a given product. In fact, it can change at different price points.
The greater the elasticity of demand as compared to another good the higher is its elasticity. For example a good having an elasticity of demand of 2 is more elastic than a good having an elasticity of demand of 1.
