Elasticity is a measure of the
responsiveness of a variable(quantity demanded or supply) to a change
in one of its determinants.
HOW MANY TYPES OF
ELASTICITY?
- Price elasticity of demand
- Income elasticity of demand
- Cross elasticity of demand
- Price elasticity of supply
PRICE ELASTICITY DEMAND
Measures the responsiveness of the
quantity demanded due to the change in its price.
DEGREE OF PRICE ELASTICITY OF DEMAND
(1)FAIRLY ELASTIC DEMAND
Small percentage change in the
price of a product will lead to a larger percentage in
the quantity demanded.The price
elasticity of demand is more than 1.
(2)FAIRLY INELASTIC DEMAND
Large percentage change in the
price will not affect the quantity demand by a small
percentage.The price elasticity
of demand is less than 1.
(3)UNITARY ELASTIC DEMAND
Percentage change in price
equals to a change in quantity demanded.Price of
elasticity demanded is equal to
1.
(4)PERFECTLY INELASTIC DEMAND
The quantity demand does not
change as the price change.Price of elasticity demanded
is equal to 0.
(5)PERFECTLY ELASTIC DEMAND
The quantity demand changes
infinite as price change.Price of elasticity demanded
is infinity.
INCOME ELASTICITY OF DEMAND
Measure the responsiveness of
changes in the quantity demand for a product due to a change in
income.
VALUE OF
ELASTICITY
|
TYPES OF
GOODS
|
EXAMPLES OF
GOODS
|
More than 1
|
Luxuries-As the income
increase ,the quantity demand for a product increases & vice
versa.
|
Antique furniture,gold &
jewelleries.
|
Less than 0
|
Giffen/inferior-The
quantity demand for a product decreases as income increases.
|
Used cars & salted
fish
|
More than 0 but less than
1
|
Necessity/normal-The
quantity demanded for product does not change even though income
increases.
|
Rice & vegetables
|
CROSS-PRICE ELASTICITY OF DEMAND
The degree of responsiveness of
quantity demanded of goods A to change in price of goods B.
VALUE OF
ELASTICITY
|
RELATIONSHIP
OF GOODS
|
More than 0 (positive)
|
Substitutes
|
Less than 0 (negative)
|
Complementary
|
Equals to 0
|
Independence
|
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