Elasticity:-
The term "elasticity" refers to the responsiveness of one variable to change in other variable. This, the elasticity of y(dependent) variable is the ratio of percentage change in y to percentage change in x(independent variable.
Mathematically,
Ey= percentage change in y ÷ percentage change in x
Elasticity of demand:-
Elasticity of demand or price elasticity of demand refers to the ratio of percentage change in demand to the percentage change in price.
Thus,
Ep = ∆Q/q ÷ ∆P/p
= ∆Q/q × p/∆P
= ∆Q/∆P × p/q
where,
p = original price
q = original quantity
∆Q = change in quantity demanded
∆P = change in price
Types of Price Elasticity of Demand:-
Price elasticity of demand generally is different for different commodity and also for different individuals. In general, price elasticity of demand are of five kinds as given below.
a. Inelastic or relatively inelastic demand.
b. Elastic demand.
c. Unitary elastic demand.
d. Perfectly inelastic demand.
e. Perfectly elastic demand.
Inelastic Demand:-
Demand is said to be inelastic when the the percentage change in demand is less than the percentage change in price.
Elastic Demand:-
Demand is said to be elastic when the percentage change in demand is more than the percentage change in price.
Unitary Elastic Demand:-
Demand is unitary elastic when the percentage change in demand of the commodity is equal to the percentage change in its price.
Perfectly Inelastic Demand:-
Demand is perfectly inelastic when it does not change irrespective of the changes in price.
Perfectly Elastic Demand:-
Demand is perfectly elastic when due to a small increase in price the demand for a commodity reduces to zero, or with a small fall in the price the demand increases to infinity.
Related Articles:-
Introduction to Microeconomics Part 1
Introduction to Microeconomics Part 2
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