The elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in its price. If a small price change leads to a large change in the quantity demanded, the demand is considered elastic. Conversely, if the quantity demanded changes little with a price change, the demand is inelastic. Factors influencing elasticity include the availability of substitutes, the necessity of the product, and the proportion of income spent on it. For example, luxury goods often have more elastic demand, while essential items like bread tend to have inelastic demand, as people need them regardless of price changes.