Elasticity of Demand

• Concept: Measures how much demand changes when price changes.
• Types:
  • Elastic (>1) → demand changes a lot (luxuries, substitutes).
  • Inelastic (<1) → demand changes little (necessities).

Example:

• Coke price rises → people buy Pepsi instead (elastic).
• Petrol price rises → people still buy it (inelastic).

Graph:

• Elastic demand = flatter curve.
• Inelastic demand = steeper curve.

Key Insight: Elasticity helps businesses decide pricing strategies.