Elasticity and Buyer Response

Elasticity is a convenient tool to describe how buyers respond tochanges in relevant variables.

Price elasticity (EP) measures howbuyers respond to changes in the price of the good. It measures amovement along a demand function. It is used to describe how muchmore of less the quantity demanded is as the price falls or rises.

Income elasticity (EM) is a measure of how much the demand functionshifts as the income(s) of the buyer(s) changes.

Cross elasticity (EXY)measures how much changes in the price of a related good will shiftthe demand function.

Elasticity can be calculated to estimate the relationship between anytwo related variables.