How do I calculate elasticity in economics?

How do I calculate elasticity in economics?

Elasticity measures how much the quantity demanded or supplied changes in response to price changes. You can calculate it using the formula: Elasticity = (% Change in Quantity) / (% Change in Price). Would you like an example?

Yes, please provide an example.

Sure! If the price of a product increases from $10 to $12, and the quantity demanded decreases from 100 to 80 units, the elasticity would be:

1. % Change in Price = (12-10)/10 * 100 = 20%
2. % Change in Quantity = (80-100)/100 * 100 = -20%
3. Elasticity = -20% / 20% = -1.

This means the demand is unit elastic.

What does it mean if the elasticity is greater than 1?

If the elasticity is greater than 1, it indicates that the demand is elastic, meaning consumers are highly responsive to price changes. A small change in price leads to a larger change in quantity demanded.