What is Price elasticity?
Price elasticity: How strongly demand reacts to a price change.
Where Price elasticity fits
Price elasticity is part of Money & Prices in Economics. Money and prices move together: inflation lowers purchasing power, interest rates set borrowing costs, and elasticity shows how demand reacts to price changes.
Practical tip
Think in real values after inflation, not just nominal ones.
Related terms
- Inflation
- A general rise in prices that reduces what money can buy.
- Deflation
- A general fall in prices that raises money's buying power.
- Monetary policy
- Central bank actions on interest rates and money supply to steer the economy.
- Money supply
- The total amount of money in an economy.
- Central bank
- The institution managing a country's money and interest rates.
- Real interest rate
- The interest rate adjusted for inflation.
Formulas you will use with it
Test yourself
Which term means: “How strongly demand reacts to a price change.”?
Inflation · Price elasticity · Central bank
Answer: Price elasticity
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