Elasticity is a key concept in economics that measures the responsiveness of one variable to changes in another variable. Specifically, price elasticity of demand measures how sensitive the quantity demanded of a good is to changes in its price. There are three main types of price elasticity: elastic, inelastic, and unitary. If the price elasticity of demand is greater than 1, the demand is considered elastic, meaning that a small change in price leads to a proportionally larger change in quantity demanded. In contrast, a price elasticity of demand less than 1 indicates inelastic demand, where changes in price have little effect on quantity demanded. Unitary elasticity occurs when the price elasticity of demand is exactly 1. Understanding elasticity is crucial for businesses and policymakers to make informed decisions about pricing strategies and the impact of taxes or subsidies on consumer behavior. For example, goods with inelastic demand are less sensitive to price changes, allowing companies to increase prices without losing many customers. On the other hand, goods with elastic demand require careful pricing strategies to maintain sales volume. Overall, a thorough understanding of elasticity helps to predict how changes in prices will influence market outcomes and consumer behavior.