Introduction to the Concept of Elasticity

1963 WordsJan 28, 20188 Pages
Introduction to the concept of elasticity Elasticity can be defined as the sensitivity measurement of a particular variable such as quantity demanded or quantity supplied towards change in one of its determinants for example demand/amount supplied in response to price or income changes. Elasticity is used to assess the change in consumer demand as a result of a change in the good’s price, we can compare the change of quantity with the change of price. 1.1 Type of Elasticity There is four types of elasticity are commonly used, they are price elasticity of demand, price elasticity of supply, income elasticity of demand and cross elasticity of demand. 1.1.1 Price elasticity of demand Price elasticity of demand measures the response of quantity demanded of a particular good towards a change in the price of the good. It gives the percentage change in quantity demanded in respond to a one percent change on price and it is measurement without units. One of the elasticity of demand formula Ed= (Percentage of change in quantity demanded)/(Percentage of change in price) Degrees of elasticity Degrees of elasticity is used to facilitate the analysis of price elasticity of demand and is categorize into five categories perfectly elastic, elastic, unitary elastic, inelastic and perfectly inelastic. elastic Demand for good is elastic the ratio change in quantity of good is greater than the ratio change in price. Inelastic Inelastic is determine as the
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