Elasticity is a measure of the responsiveness of demand to a change in price. It’s an indicator of how much buyers are willing to pay for a product or service when the cost rises or falls. To put it simply, elasticity tells us how customers choose to spend their money. The higher the elasticity, the more sensitive they are to changes in cost; conversely, the lower the elasticity, the less sensitive they are. With knowledge of elasticity, businesses can better understand customer behaviors and make more informed pricing decisions for their goods and services.