What does elasticity measure in economics?

Elasticity in economics specifically measures the responsiveness of quantity demanded or supplied to changes in price. This concept is essential for understanding how consumers react to price changes; for instance, a product with high price elasticity means that consumers will significantly change their quantity demanded with even a small change in price, whereas a product with low price elasticity indicates that quantity demanded will remain relatively stable despite price fluctuations.

Understanding elasticity helps businesses and policymakers make informed decisions about pricing strategies, taxation, and policy measures to influence market behavior. It provides insights into consumer behavior and market dynamics, so that decisions can be made with a deeper knowledge of how price changes may impact demand and supply levels.