What does elasticity measure in economics?

Elasticity in economics is a crucial concept that quantifies the responsiveness of one variable to changes in another variable, specifically in the context of demand and supply. When we talk about elasticity, we usually refer to measures like price elasticity of demand, which assesses how the quantity demanded of a good or service changes in response to a change in its price. If demand is elastic, a small change in price results in a significant change in quantity demanded. Conversely, inelastic demand indicates that quantity demanded is relatively unresponsive to price changes.

Elasticity can also pertain to income elasticity, which measures how demand changes as consumer incomes change, and cross-price elasticity, which assesses the relationship between the demand for one good and the price change of another. These measures help economists understand consumer behavior and how markets adjust to various influences, which is essential for business strategy and policymaking.

The other options address different economic concepts. The level of competition within a market refers to market structure, while overall economic output is related to metrics like GDP. The impact of government policies on prices pertains to regulation and market interventions but does not directly connect to the concept of elasticity, which explicitly focuses on the responsiveness of demand or supply.