Chapter 5: Elasticity and its Application

Chapter 5 is mainly about how economist find the precise measurements of how buyers and sellers react to a change in market conditions, also known as elasticity. For example, price elasticity of demand measures how the quantity demanded responds to a significant change in market prices, and some factors can determine the level of price elasticity of demand: availability of close substitutes, necessities versus luxuries, definition of the market, and time horizon. It is referred to as inelastic when the quantity demand reacts slightly to the change in price. One method to find the price elasticity of demand is by dividing the percentage change in quantity demanded by percentage change in price.