What is elasticity?

Question

and can someone give me a good example to learn from, i took a class and i read about it but i just don't get it.

Answer 1

the tendency of a body to return to its original shape after it has been stretched or compressed: "the waistband had lost its snap"

Answer 2

a material's ability to return to its original size & or shape after being stretched.

Answer 3

Price elasticity of demand:

Elasticity is how sensitive a good or service is to a change in price. When a good is inelastic, it means that a change in price will have a smaller effect on the demand; if a good is elastic, it means a change in price will have a large effect on demand. In general, if a good is price elastic, then total revenue with decrease with an increase in price. If a good is price inelastic, total revenue with increase with an increase in price.

Example of an inelastic good:

Gasoline. We need gasoline for our cars, no matter how expensive it gets, so even if the price goes up, our consumption won't change dramatically in the short run.

Example of an elastic good:

Any normal good. If, for instance, the price of apples skyrockets, we'll be able to easily pick a substitute, so our consumption of apples will go down...for example, pears.

The basic formula is (change in Q demanded)/(change in price) for price elasticity of demand. If it's less than one, it's elastic. If it's greater than one, it's inelastic. If it's one, it's unit elastic. If it's zero, it's perfectly elastic (see short term perfect competition model) and if it's undefined, it's perfectly inelastic.

Determinants of price elasticity of demand -- remember SPLAT:

Substitutability

Price (or percentage of income)

Luxury vs necessity

Addiction (e.g. cigarettes)

Time

Price elasticity of supply is similar, but as the name suggests, on the supply side -- so we're dealing with producers.

There's also the cross elasticity of demand, which compares two products:

(change in Q demanded of product x)/(change in price of product y)

If it's negative, the two products are substitutes. If it's positive, the two products are complements.