This assignment will examine one of the most important concepts in the whole of economics – elasticity. It is the responsiveness of one variable (demand or supply) to a change in another (e.g. price). This concept is elementary to comprehending how markets work. The most common elasticities used include price elasticity of demand, price elasticity of supply, cross-price elasticity of demand and income elasticity of demand.

The economic measures of how much the quantity demanded changes when the price changes is called price elasticity of demand. This response can be calculated by divided the percentage in quantity by the percentrage change in price. It is always end up negative. Determinants that affect price elasticity of demand include the number and closeness of substitute goods, the proportion of income spent on the good and the time period. They are directly related to the elasticity coefficient. Price elasticity of supply is a measure of how much the quantity supplied changes when the price changes. It is the ratio of the percentage change in quantity supplied to the percentage change in price. It is usually positive. Supply is determined whether elastic or inelastic depends on two main determinants: the ability of sellers to change the amount of the good they produce when the price changes and the time period.