What is elasticity and why does it matter to economists?

Elasticity is, in general terms, the amount supply or demand will react to a change in another variable such as income or price. It is very important to economists as it will allow them to estimate economic reactions caused by future changes. For instance if a business wanted to increase the price of a good they could use the elasticity to know how people will continue to buy after they increase the price. The most common elasticities you will be asked to work out are the price elasticity of demand or income elasticity of demand - you do this by using the formula: Percentage Change in Quantity over Percentage Change in Price or Income. This can always be remembered as the change in Q first and price (or income) after, as "The Queen Rules Over The People". Simply the formulas can be written as on the whiteboard.