Economics Fundamentals — How sensitive buyers and sellers are to a change in price.
Elasticity measures how sensitive people are to a price change. It explains why a price hike helps some businesses and hurts others.
Elastic demand: Quantity demanded changes a lot when price changes. Common when there are many substitutes.
Inelastic demand: Quantity demanded barely changes when price changes. Common for necessities with few substitutes.
If demand is elastic, raising prices can lower total revenue because buyers leave. If demand is inelastic, raising prices can raise revenue because buyers stay.
Governments tax inelastic goods like fuel and cigarettes because people keep buying them even as prices rise.
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