Elasticity measures how responsive demand is to a change in price / income

PED = % change in quantity demanded / % change in price

YED = % change in quantity demanded / % change in income

Inelastic: less responsive to a change in price / income

Elastic:  more responsive to a change in price / income

If YED / PED is greater than 1 it is elastic

If YED / PED is less than 1 it is inelastic

If YED / PED is 1 it is neither elastic or inelastic

To increase revenue for elastic goods you decrease price

To increase revenue for inelastic goods you increase price

Elastic goods tend to be:

- Luxuries

- Many substitutes

- Take up a large % of income

 Inelastic goods tend to be:

- Necessities

- Few substitutes

- Take up a small % of income

- Goods with strong brands