What is price elasticity?

Price elasticity, or price demand, is the measure of how much the demand of a product can respond to a change in its price. Price elasticity is an important concept in the law of supply and demand.

The basic laws of economics state that, all things held equal, a good has a higher demand if it has a lower price. However, not all goods respond to changes in price with a change in demand. Essential goods, such as electricity and water, are said to be inelastic. They are so important that they remain in high demand despite changes in price.