ELASTICITIES OF DEMAND
MEANING OF ELASTICITY:-
Elasticity is concerned with the extent to which one variable, for example, demand, responds to a change in another variable, for example, price. The three types of elasticity of demand measure how the quantity demanded responds to changes in the key influences on demand; price, price of related products and income. With elasticity of demand, economists are concerned not only with the direction of the change in demand but also the size of the change.
PRICE ELASTICITY OF DEMAND:-
Price elasticity of demand refers to the responsiveness of quantity demanded to a change in price. Where quantity. demanded is very responsive to price changes — a small change in price leading to a relatively large change in quantity demanded
demand is said to be elastic. Whereas when quantity demanded is relatively unresponsive to price changes, demand is inelastic. To be more precise, elasticity of demand is the relationship between the proportionate change in price and the proportionate change in quantity demanded.
MEASURING PRICE ELASTICITY OF DEMAND:-
The concept of elasticity is concerned with proportionate changes in price and quantity and not absolute changes. Price elasticity of demand can be given a numerical value by using the following formula:
Price elasticity of demand is usually negative since for most products price and demand are inversely related.
DEGREES OF PRICE ELASTICITY OF DEMAND:-
Demand for most products is either elastic or inelastic. Products with elastic demand have a coefficient greater than one and less than infinity. In this case a given percentage change in price will cause a greater percentage change in demand. Demand tends to be e ...