Hinnanjoustuvuus

Hinnanjoustuvuus, often translated as price elasticity, is an economic concept that measures the responsiveness of the quantity demanded or supplied of a good or service to a change in its price. Specifically, it quantifies how much the quantity demanded or supplied changes when the price increases or decreases by a certain percentage.

There are generally three categories of price elasticity. If the percentage change in quantity demanded or supplied is greater than the percentage change in price, demand or supply is considered elastic. This means consumers or producers are highly responsive to price changes. If the percentage change in quantity is less than the percentage change in price, it is considered inelastic. In this case, quantity changes are relatively small, even with significant price fluctuations. If the percentage change in quantity is exactly equal to the percentage change in price, demand or supply is unit elastic.

Several factors influence price elasticity. The availability of substitutes is a key determinant; if many substitutes exist, demand tends to be more elastic. The proportion of income spent on a good also plays a role; goods that take up a larger portion of income are generally more elastic. The time horizon is another factor; demand or supply tends to become more elastic over longer periods as consumers and producers have more time to adjust. In business and policy, understanding price elasticity is crucial for pricing strategies, taxation, and predicting market responses to economic changes.