Elasticity
Elasticity measures how responsive quantity is to price.
About this topic
Price elasticity of demand measures how responsive quantity demanded is to a price change: PED = percentage change in quantity divided by percentage change in price. If the absolute value of PED is greater than 1, demand is elastic: consumers are sensitive, as with luxuries and goods with many substitutes. If it is less than 1, demand is inelastic: necessities such as petrol and insulin, where people keep buying despite higher prices.
Elasticity matters because it determines what happens to revenue and who bears a tax. If demand is elastic, raising the price cuts revenue because many customers leave. If it is inelastic, raising the price increases revenue. Governments tax inelastic goods such as cigarettes and fuel because the tax raises a lot of money without much change in sales.
Example: if a bus fare rises 10 percent and passengers fall 20 percent, PED is minus 2, which is elastic, so revenue drops. If petrol rises 10 percent and sales fall 2 percent, PED is minus 0.2, inelastic, so revenue rises. Elasticity is higher when substitutes are available, when the good is a large share of income, and over longer time periods.
Misconceptions: elasticity is not the same as the slope of the curve, and the sign is usually negative, so we compare the size. Tip: ask can people easily do without it or switch to something else.
Key ideas
- Elastic: large response
- Inelastic: small response
- Necessities are inelastic
Quick check
Use cases: where Elasticity helps
- Homework: review the key idea behind Elasticity before you start a problem set.
- Exam revision: use the quick check to test whether you can recall Elasticity without notes.
- Visual learning: play with the interactive lab to see how Elasticity changes when you adjust its inputs.
- Teaching a friend: explain Elasticity in your own words, then compare your version with the key ideas.
Economics explains prices, jobs, budgets and government policy in daily life.
Frequently asked questions
What is Elasticity?
Elasticity measures how responsive quantity is to price.
What will I learn in Elasticity?
Elastic: large response. Inelastic: small response. Necessities are inelastic.
Is Elasticity part of Economics & Money?
Yes. It is one of 30 Economics & Money topics on LearnViz HighSchoolEdu, with 3 key ideas, a live animation and a quick check.
Does the Elasticity lab work on a phone or tablet?
Yes. The animation resizes to fit your screen and supports touch, so you can drag, tap and slide with your finger.
How should I study Elasticity?
Read the summary and key ideas first, play with the interactive lab to see the idea in motion, then answer the quick check. If you get a question wrong, go back to the key idea it tests.
Do I need an account, and is my progress saved?
No account is needed. Marking a topic as learned is saved in your own browser, so it stays on that device and is not sent to a server.