The elasticity of demand is the responsiveness of demand to changes in the price of the product or service, or changes in some of the other determinants of the demand. Some products and services are very important to the consumer, for example, some foodstuffs, while other items are not very important. Customers will tend to buy the same amounts of essential items when the price of that item increases. However when the price of some luxury good, is not very important to the consumer, when that increases the consumer may reduce the amount purchased, or stop buying it altogether.
We measured this with elasticity. It measures the amount by which customer demand will stretch our contract when the price of the commodity changes.
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