In the world of economy, one of the key considerations is the elasticity of the price. In general, a product is considered to be elastic if the amount consumed or purchased fluctuates more than the price changes. The ratio of the allocation change in the quantity requested to the percentage change in price is usually referred to as the price elasticity(Mankiw, 2020). The link between price and the necessary or supplied number of units is depicted by the demand and supply curves respectively. It helps economists comprehend how supply and demand fluctuate as a product’s price changes. A product is considered elastic when a change in its price results in a substantial change in either its supply or demand. This often indicates that there are suitable alternatives to the product. For example, expensive automobiles, sweets, or coffee. It is said that a product is inelastic if a change in its price has no discernible impact on either the supply or demand for it (Mankiw, 2020). This often indicates that the item is a luxury or necessity with addictive components. Examples may include milk, branded phones, and gasoline.
Anyone who offers a product can decide on their pricing strategy in light of the price elasticity of demand for that commodity. This statistic tells sellers how sensitive consumers are to pricing. It is crucial for economic actors to consider how to tax products as well as for manufacturers of goods to establish their production strategies. Since economists evaluate the supply and demand for a product when its price changes, elasticity in this situation is crucial. It is important to consider the sensitivity of quantity to price fluctuations since this is what the elasticity of demand measures.
Reference
Mankiw, N. G. (2020). Principles of Economics. Cengage Learning.