What does an elasticity of 1 mean?

Elasticity of one is when the percentage of price change matches with the percentage of demand change. Let's say you sell chocolate chip cookies. You decrease the price of your cookies by 25 percent. The demand for your cookies increases by 25 percent. 25 divided by 25 is 1.

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Before we can tell you what an “elasticity of one” means, we should probably spend some time on elasticity by itself.

What is elasticity? Perhaps the word itself gives us a hint. If something is elastic, it's flexible. It can change and adapt. Let's apply that to economics. If you have a good with an elastic price, it means the price is subject to change. Gasoline prices and airline ticket prices are rather clear...

(The entire section contains 225 words.)

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