The elasticity of demand and supply can depend on several factors, including the availability of substitutes, the nature of the good (necessity or luxury), the proportion of income spent on the good, and time horizon in consideration. Goods with close substitutes tend to have higher elasticity as consumers can easily switch products if the price changes. Necessities typically have lower elasticity as consumers need them regardless of price changes. The larger the proportion of income spent on a good, the more elastic the demand for it. Over time, demand tends to become more elastic as consumers can find alternatives or change their buying habits.

Elasticity is generally calculated using the formula percentage change in quantity divided by the percentage change in price, income, or another relevant factor. For price elasticity of demand or supply, this can be represented as: \[ E_d = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} \] A value greater than 1 indicates elastic demand, less than 1 indicates inelastic demand, and equal to 1 suggests unitary elasticity.

Price elasticity of demand measures how much the quantity demanded of a good changes in response to a change in price. Highly elastic demand means consumers are very responsive to price changes, while inelastic demand indicates little responsiveness. For example, luxury goods tend to have more elastic demand compared to necessities.

Similar to demand, price elasticity of supply measures how much the quantity supplied changes with price changes. Factors affecting supply elasticity include time period under consideration, production flexibility, and availability of resources.

Income elasticity of demand examines how the quantity demanded of a good changes as consumer income changes. Normal goods have positive income elasticity, meaning demand increases with an increase in income, while inferior goods have negative income elasticity.

This type of elasticity tells us how the quantity demanded of one good changes when the price of another good changes. It is positive for substitute goods and negative for complementary goods.

Elasticity plays a crucial role in strategic business decisions like pricing, marketing, and production. Firms use price elasticity to set prices at levels that maximize revenue and profit. Governments impose taxes and subsidies based on elasticity to achieve economic objectives like reducing the consumption of demerit goods or encouraging merit goods.