... down cigarette sales by 50%. Judging by these figures it is necessary to understand the concept of elasticity so that it is possible to observe (on a diagram) whether or not the price for a good is elastic or not. (Definition: Elasticity indicates how one variable responds to a change in another variable. The main types of elasticity are elasticity of demand (price, cross price, income, advertising), and the elasticity of supply (price). The value can be either elastic or inelastic. An elastic value implies that the there will be a significant change in the quantity due to a change in the other variable, hence, it is very sensitive. While an inelastic value implies that the variable is not very sensitive to the change in the other variable.) P1--> P2 (Small increase in price) Q1 --> Q2 (Large decrease in quantity demanded) Using the formula of price elasticity when dealing with percentages, it is ...

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