Elasticity of Demand Analysis

'Elasticity of Demand' measures the responsiveness of quantity demanded to a change in one of its determinants. The most common type is Price Elasticity of Demand (Ed), which measures how demand responds to a price change. It can be elastic (responsive, Ed > 1), inelastic (unresponsive, Ed < 1), or unitary (proportionally responsive, Ed = 1). Two extreme cases are perfectly elastic (Ed = ∞) and perfectly inelastic (Ed = 0). Other types include Income Elasticity (responsiveness to income change) and Cross Elasticity (responsiveness to a change in the price of another good). This concept is vital for businesses in setting prices and for governments in levying taxes.