THE PRICE ELASTICITY OF DEMAND AND ITS DETERMINANTS
The law of demand states that a fall in the price of a good raises the quantity demanded. The price elasticity of demand measures how much the quantity demanded responds to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price.
Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price. The price elasticity of demand for any good measures how willing consumers are to move away from the good as its price rises. Thus, the elasticity reflects the many economic, social, and psychological forces that shape consumer tastes. Based on experience, however, we can state some general rules about what determines the price elasticity of demand.
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