Elasticity Of

Demand
❖ What is Elasticity..?

✓ Elasticity is a measure of a variable’s

sensitivity to a changing another variable.

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❖ Elasticity Of Demand

✓ In economics, the demand elasticity refers to how

sensitive the demand for a good is to changes in other
economic variables, such as prices and consumer
income. Demand elasticity is calculated as the percent
change in the quantity demanded divided by a percent
change in another economic variable.

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❖ Types Of Elasticity Of Demand

✓ Perfectly Elastic Demand(Ep=∞)

✓ Perfectly Inelastic Demand(Ep=0)
✓ Relatively Elastic Demand(Ep=>1)
✓ Relatively Inelastic Demand(Ep=<1)
✓ Unitary Elastic Demand(Ep=1)

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❖ Importance Of Elasticity Of Demand

✓ International Trade
✓ Formulation of Government Policies
✓ Factor Pricing
✓ Decisions of Monopolist
✓ Paradox of poverty amidst plenty

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❖ Factors Affecting Price Elasticity Of
Demand
✓ Nature of the Commodity
✓ Availability of Substitutes
✓ Variety of uses of Commodity
✓ Postponement
✓ Influence of habits
✓ Proportion of income spent on a Commodity
✓ Range of Prices

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❖ Price Elasticity Of Demand
• The price elasticity demand is a measure of the responsiveness of demand
to changes in the commodities own price.
• It is the percentage change in the quantity demanded of a product that
result from a 1% change in the price of that product, ceteris paribus.

❖Income Elasticity Of Demand

• Income Elasticity of Demand measures the responsiveness of a
change in demanded of some commodity to a change in income.

❖ Cross Elasticity Of Demand

• Another variable that often affects the demand for a product is the price of
related(substitute or complementary) product.
• The cross elasticity of demand is a measure of the responsiveness of changes
in the quantity demanded of product Ato price changes for product B.

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 Thank You

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