# Price Elasticity of Demand

*Macro & Economy — Finicade finance glossary*

Price elasticity of demand measures how much quantity demanded changes when price changes. Demand is elastic when the response is proportionally larger than the price move and inelastic when it's smaller. It decides who really pays a tax, whether a price rise raises or lowers revenue, and why insulin and cigarettes can be taxed heavily while restaurant meals cannot.

**Formula:** `Elasticity = % change in quantity ÷ % change in price`

**Also known as:** elasticity, elastic demand, inelastic demand

**Related terms:** [Supply and Demand](https://finicade.com/glossary/supply-and-demand), [Marginal Utility](https://finicade.com/glossary/marginal-utility), [Opportunity Cost](https://finicade.com/glossary/opportunity-cost), [Tariff](https://finicade.com/glossary/tariff), [Inflation](https://finicade.com/glossary/inflation)

**Taught in:** Charter Climb — Microeconomics: Firms & Markets

Source: https://finicade.com/glossary/price-elasticity-of-demand