We've already studied how supply and demand curves act together to determine market equilibrium, and how shifts in these two curves are reflected in prices and quantities consumed. Not all curves are the same, however, and the steepness or flatness of a curve can greatly alter the affect of a shift on equilibrium. Elasticity refers to the relative responsiveness of a supply or demand curve in relation to price: the more elastic a curve, the more quantity will change with changes in price. In contrast, the more inelastic a curve, the harder it will be to change quantity consumed, even with large changes in price. For the most part, Goods with elastic demand tend to be goods which aren't very important to consumers, or goods for which consumers can find easy substitutes. Goods with inelastic demands tend to be necessities, or goods for which consumers cannot immediately alter their consumption patterns.
In this unit, we will define and examine the concept of elasticity, and we will learn how to calculate and compare elasticities. Once we have calculated a curve's elasticity, how do we determine whether the curve is elastic or inelastic? We will define these boundaries of elasticity. Additionally, we will take a look at practical applications of elasticity, and examine how it can affect markets in the real world.