Elasticity measures the responsiveness of one variable following a change in another variable. For example, we’d like to know demand for a good will change after a firm has increased the price of it. This is measured using the concept of elasticity.
1. Price elasticity of demand
PED measures the responsiveness of consumers following a change in the price of a good. It is the proportionate change in demand after the price has changed.
2. Price elasticity of supply
PES is the proportionate change in supply of a good following a change in the price of it.
3. Income elasticity of demand
Measures the change in quantity demanded of a good following a change in consumers’ income.
4. Cross elasticity of demand
Measures the proportionate change in demand for good A following a change in the price of good B.