What is demand elasticity, and how does it apply to the theories of supply and demand?
Demand elasticity is a measure of how the quantity demanded of a good or service changes in response to a change in price. It helps to determine how sensitive consumers are to price changes.
In the theories of supply and demand, elasticity is an important concept for understanding how changes in price can affect the quantity demanded and supplied. When demand is elastic, a small change in price will result in a large change in quantity demanded. Conversely, when demand is inelastic, a change in price will result in only a small change in quantity demanded.
Elasticity also applies to supply, where it measures how responsive suppliers are to changes in price. If supply is elastic, producers can easily increase production in response to higher prices. If supply is inelastic, producers may struggle to increase production, leading to shortages or surpluses.
Overall, demand elasticity plays a crucial role in helping to determine equilibrium prices in the market, as well as understanding how changes in price can impact both consumers and producers.