Elasticity of demand measures how sensitive quantity demanded of a good is to a change in its price. This depends on the availability of substitutes, time and the price at which we want to measure elasticity.
Price elasticity of demand = %change in quantity demanded/%change in price
If a change in price of a certain proportion causes a greater proportion change in quantity demanded then the demand for the good is price elastic. Elasticity of demand isn't the same as slope so as we move down the demand curve we go from being more elastic to more inelastic.
Horizontal demand curves mean perfect elasticity because elasticity is infinite. As quantity demanded increases the price remains the same because buyers are not willing to pay any more or less for a good. Vertical demand curves mean perfect inelasticity because elasticity is zero. It doesn't how much the price is buyers still demand the same quantity of the good. Water would probably be the closest to a perfectly inelastic good because no matter the price of water you still need it to survive.
Elasticity of demand increases when substitutes increase, time increases or if it is a luxury good. When there are more substitutes people are more willing and able to buy goods A, B or C when the price of good D increases. Goods that are inelastic now may become more elastic over time because alternatives thank to new technology or whatever may be developed. For example, most people still run their cars on petrol because alternative fuels are still being properly developed. This means the demand for petrol is price inelastic. However, as the price of petrol increases and people develop technology and discover more ways of developing alternative fuels then over time petrol becomes more elastic. Luxury goods are more elastic than necessities because, since you don't actually need luxuries, an increase in the price of a luxury causes quantity demanded to decrease more than the proportion increase in price.
Revenue and Elasticity
An increase in the price of an inelastic good causes revenue to increase because consumers don't have much choice so don't decrease quantity demanded as proportionally much as the price. With an elastic good, increasing the price causes revenue to decrease because consumers will demand other goods and decrease quantity demanded proportionally more than the price increase.
Elasticity of supply measures how sensitive quantity supplied of a good is to a change in its price. This depends on the time period, whether there is an input fixed in quantity or price at which we want to measure elasticity.
The formula for supply elasticity is like that of demand except instead of quantity demanded it's quantity supplied.
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