Since the laws of supply and demand set price, prices are always subject to change based upon market forces and the interaction between the consumer and business. This change in prices and the degree of said change is known as elasticity . There are two types of elasticity that we need to be concerned with. They are demand elasticity and supply elasticity. Demand Elasticity - the degree to which changes in price effect changes in demand.
Demand is elastic when a small change in price effects a large change in demand.
Such products, that show great variability in demand are known to have elastic demand. Demand is inelastic when a change in price does not bring about a correspondingly large change in demand, or any change at all. Said products are known to show inelastic demand. The elasticity of demand can usually be estimated by examining the answers to three key questions. All three answers do not have to be the same in order to determine elasticity, and in some cases the answer to a single question is so important that it alone might dominate the answers of the other two.