Definition
Price Elasticity
How much quantity demanded or supplied changes in response to a price change.
Definition
How much quantity demanded or supplied changes in response to a price change.
Why It Matters
Elasticity determines who bears the burden of taxes, price controls, and market shocks. Inelastic goods (necessities) see less quantity change but more severe impacts on cost burden.
Policy Example
Housing supply in dense cities is very inelastic — a 10% rent increase generates much less than a 10% increase in housing units, because land and permitting constraints make it hard to build. This is why rent control causes long-run shortages.
In Context