Supply and demand curves show that quantity changes as price changes, but they don't by themselves say how much. Elasticity fills exactly that gap, measuring precisely how sensitive quantity demanded or supplied is to a given price change, expressed as the percentage change in quantity divided by the percentage change in price. That single number turns out to answer a genuinely practical business question: whether raising a price actually increases total revenue, or whether it backfires by driving away more buyers than the higher price gains.
Whether demand is elastic or inelastic decides which way revenue moves
If demand is elastic, meaning quantity demanded falls by a larger percentage than the price rise that caused it, raising the price actually reduces total revenue, since the resulting drop in sales volume outweighs the higher price per unit. If demand is instead inelastic, meaning quantity demanded falls by a smaller percentage than the price increase, raising the price increases total revenue, because the lost sales volume doesn't offset the higher price collected on the units still sold. This is exactly why the same pricing strategy, raise the price, can be smart for one product and disastrous for another: the outcome depends entirely on that product's actual elasticity, not on the size of the price change alone.
What actually determines elasticity is how easily buyers can switch away
A product's elasticity depends heavily on how many close substitutes are available and how essential the product actually is to the buyer: a good with many easy substitutes, one brand of a common snack, tends to have elastic demand, since buyers can simply switch to a similar alternative rather than pay more. A good with few substitutes and genuine necessity, insulin for someone who needs it, tends to have inelastic demand, since buyers have little real option to reduce purchases even as price rises. Businesses and policymakers alike use exactly this reasoning, working out how easily buyers could actually switch away, to predict how a given market will respond to a price change before it happens.
What we're still unsure about
That elasticity correctly predicts whether a price change increases or decreases total revenue, given an accurate measure of that elasticity, is well established, extensively confirmed microeconomic theory. What's more genuinely a matter of ongoing empirical difficulty is exactly how accurately a specific product's real-world elasticity can actually be measured in advance, since elasticity can shift over time as substitutes emerge or consumer habits change, and economists and businesses continue to rely on historical sales data, surveys and careful experimentation to estimate elasticity for a given product, rather than there being one fixed, permanently reliable number for any given good.
This sits inside Elasticity of Demand & Supply, one of eight topics in Microeconomics, one of five domains in Economics, one of seventeen subjects the app can quiz you on.