Elasticity is a concept often used in economics to measure how sensitive demand is to changes in price. This idea is central to understanding demand curves, supply and demand analysis, and perfect competition. Essentially, elasticity is the measure of how drastically the demand for a good or service changes when the price of that good or service changes. It is expressed as a ratio of the percentage change in quantity demanded to the percentage change in price.

Elasticity is most relevant to companies that operate in competitive and dynamic industries, as their prices tend to be a direct response to changes in demand. If customer demand is highly sensitive to changes in price, meaning that as prices decrease, demand increases significantly, then the product or service is said to be elastic. On the contrary, if demand does not change significantly when price changes, then the product or service is said to be inelastic.

Companies that offer goods and services that are elastic have a clear understanding of their customers and their preferences when it comes to cost. When the price of the product or service reaches the point of elasticity, companies can adjust the price accordingly and maximize the quantity demanded, which can be beneficial for the company in the short and long term. Additionally, products or services that are highly elastic can be lethal to a company’s bottom line, as small changes in the price can drastically change the amount of goods or services they can offer at a given price point.

In conclusion, elasticity is an important economic measure that can help companies make decisions and strategies that can positively impact their bottom line. With an understanding of how customer demand responds to changes in price, companies can make informed decisions on the right price point for their products and services and adjust accordingly. By utilizing elasticity, companies can make the most of their products and services and stay competitive in their industries.