Question

Can you please help me understand elasticity?

Answer 1

Sometimes the demand for a good is very dependent on price changes. For instance, let's say that there is a gourmet coffee shop in town and suddenly the price of a double mocha latte increases from $3.00 per cup to $5.50 per cup. Suddenly, the demand of consumers for double mocha lattes decreases dramatically and they start buying a different item, such as herbal tea. The demand for this good is said to be elastic. Demand will change depending on the change in price of the good. The quantity demanded will be affected. In this case, the demand decreases based on the increase in price.