Elasticities

Elasticity measures how responsive one variable is to a change in another. In microeconomics, elasticities quantify how quantities demanded and supplied react to changes in price, income, and the prices of related goods. Because they are calculated as ratios of percentage changes, elasticities are unit-free, which makes them ideal for comparing very different markets.

Price elasticity of demand (PED)

Price elasticity of demand measures the responsiveness of quantity demanded to a change in the good's own price. The formula is $$PED = \frac{\%\ \Delta Q_d}{\%\ \Delta P}.$$ Because of the law of demand, PED is normally negative, but economists usually refer to its absolute value. If PED is greater than one, demand is elastic (quantity is very responsive); if it is less than one, demand is in