Now let’s delve into the topic of elasticity. There are three kinds of elasticity:

1. Price elasticity of demand

2. Income elasticity of demand

3. Cross-elasticity of demand

First, there’s the price elasticity of demand, which involves examining a single product and observing how a change in price affects the change in quantity demanded. This is the most important of the three types of elasticity. We use this to determine whether we have elastic demand or inelastic demand.

Next is the income elasticity of demand, used for comparing one product to determine whether it’s a normal good or an inferior good.

The third type is cross-elasticity of demand. This measure is for comparing two products and determining whether they are complimentary goods or substitute goods. With that said, let’s discuss these different formulas.