Elasticity is an important idea in microeconomics. It helps us see how changes in price affect how people buy things and how producers decide to sell them.

Key Concepts of Elasticity

1. Price Elasticity of Demand (PED):

   • This measures how much the amount of a good people want to buy changes when its price changes.
   • We can figure it out with this simple formula:
   $$\text{PED} = \frac{\text{percentage change in quantity demanded}}{\text{percentage change in price}}$$
   • For example, if the price goes up by 10%, and that makes the amount bought go down by 20%, the PED would be -2. This means the demand is elastic, or sensitive to price changes.

2. Price Elasticity of Supply (PES):

   • This shows how the amount of a good that producers are willing to sell changes when the price changes.
   • It’s calculated the same way:
   $$\text{PES} = \frac{\text{percentage change in quantity supplied}}{\text{percentage change in price}}$$
   • If the price goes up by 15% and the supply goes up by 30%, the PES would be 2. This indicates that the supply is also elastic.

Real-Life Examples

• Consumer Behavior: Let’s say a school's cafeteria raises the price of sugary drinks by 10%. If the PED is high (like -3.5), this means that students will buy a lot fewer drinks because they are sensitive to changes in price.

• Producer Decisions: For a toy company, knowing the PES helps them understand how fast they can react when raw material prices go up. If the PES is low, it means they might have trouble adjusting their supply quickly, which could hurt their profits.

By understanding these ideas, students can make better guesses about what will happen in both their own lives and in the market. This helps them make smarter choices.