Elasticity of Prices

Elasticity is one of the very basic concept of Economics and helps to understand how consumers (also called buyers) and producers (also called sellers) react to price changes, making it a crucial concept for pricing strategies and understanding how an economy behave. There are various types of elasticity, but for now we'll see the price one, having two main types: price elasticity of demand and price elasticity of supply.

Price elasticity of demand is how much people change the amount they want to buy when the price changes. If something is "elastic," people are very sensitive to the price, so if the price of that item goes up, they'll buy less of it or look for alternatives that cost lesser. And if it's "inelastic," people will still buy the same amount no matter how much the price changes. A good example of inelasticity is medicines. Doesn't matter their prices go up or down, you'll still need to buy to save your health! Now, for elastic demands, businesses need to be careful with price increases as customers might buy less and go for alternatives. But for inelasticity, businesses can raise prices, and people will still buy it because they need it, like as seen for medicines.

Price elasticity of supply is different. It's about how much the producers change the quantity of products they sell when the price changes. If the supply is "elastic," producers can quickly make more or less of something based on the price. If it's "inelastic," they can't change the quantity much even if the price changes. During elasticity, they can easily respond to price changes, which can help stabilize prices in the market. But in inelasticity, even a small change in demand or cost can lead to big price swings. Luxury items can be considered as elastic as people will buy them less if their prices get too high, so the producers will tend to make them less to keep their profits safe from loss.