Elasticity of demand and supply

Elasticity of demand measures the responsiveness of quantity demanded for a good or service to a change in its price, ceteris paribus.
Price elasticity of demand (PED) is calculated using the formula: % change in quantity demanded ÷ % change in price.
If PED > 1, demand is elastic. This means a change in price results in a larger percentage change in quantity demanded.
If PED < 1, demand is inelastic. A change in price results in a smaller percentage change in quantity demanded.
If PED = 1, demand is unit elastic. A change in price leads to a proportional change in quantity demanded.
Factors affecting PED include availability of substitutes, necessity of the good, time period and proportion of income spent on the good.

Income elasticity of demand (YED) measures the responsiveness of demand to a change in consumer income.
It’s calculated as: % change in quantity demanded ÷ % change in income.
If YED > 0, the good is a normal good. As income increases, demand for the good increases.
If YED < 0, the good is an inferior good. As income increases, demand for the good decreases.
Normal goods can be further classified into necessities (0 < YED < 1) and luxuries (YED > 1).

Cross elasticity of demand (XED) measures the responsiveness of demand for one good to a change in price of another good.
Calculated by the formula: % change in quantity demanded of good A ÷ % change in price of good B.
If XED is positive, the two goods are substitutes. An increase in price of one leads to an increase in demand for the other.
If XED is negative, the goods are complements. An increase in price of one reduces demand for the other.

Elasticity of supply measures the responsiveness of quantity supplied to a change in price of a good or service.
Price elasticity of supply (PES) equals % change in quantity supplied ÷ % change in price.
If PES > 1, supply is elastic. Producers can increase production significantly in response to price increases.
If PES < 1, supply is inelastic. Production is insensitive to price changes.
Factors influencing elasticity of supply include time period, mobility of factors of production, unused capacity and rate of increase in costs.