Elasticity of demand

Elasticity of demand is an economic concept which measures the change in the quantity demanded that results from a change in price of a good or service, or more specifically elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price. Elasticity of demand can be seen as a measure of the responsiveness or sensitivity of buyers in the quantity they demand of a good or service to a given price change. Elasticity of demand can be divided into three categories, elastic, inelastic and unitary. An elastic response is said to occur when a percentage change in price results in a larger percentage change in quantity demanded, while an inelastic response occurs when a percentage change in price results in a smaller percentage change in quantity demanded. A unitary response occurs in the rare case where a percentage change in price results in an exactly equal percentage change in quantity demanded. Elasticity of demand is reflected in the slope of a demand curve, a slope which becomes more horizontal reflects an increase in elasticity, while a demand curve whose slope becomes more vertical reflects an increasing level of inelastic demand.