Académique Documents
Professionnel Documents
Culture Documents
Types of elasticity
Elasticity of demand
Elasticity of supply
Δq Δp
ep = ×100 ÷ ×100
q p
Δq Δ p
e.p = ÷
q p
Since the normal demand curve is drawn sloping down, then its negative due to the negative
relationship between price and quantity which means the price elasticity of demand formula
should be negative sign.
Δq p
E.p =−[ × ]
Δp p
0 ≤ ep ≤ ∞
POINT ELASTICITY
This measures the price elasticity of demand at a point on the demand curve.it measures the
small percentage changes in price .
dq p
E.p = (-) ×
dp q
ARC ELASTICITY
This refers to the price elasticity of demand between two points on demand curve. it is given
by the formula;
Δq p1÷ p2
E.p=(-) ×( )
Δp q1÷q2
This there for means arc elasticity is simply the average elasticity of the point of elasticity at the
two points.
GROSS ELASTICITY.
This refers to the responsiveness of the demanded of a commodity due to a given change in
the price of another good. for example lets label pods as X and Y
Where ;
Ey=income elasticity of demand
Y=income of the consumer
Q=quantity demanded
dy=change in consumers income
when income elasticity of demand is negative ;
This implies that consumers income leads to quantity demanded of the
commodity with negative elasticity of demand as inferior good.
When income elasticity demand is zero
This means that change in consumers income does not change the quantity
demand of a commodity .
This therefore means that such a good is a necessity.
When income elasticity of demand is positive .
This implies that increase in consumers income leads to an increase in the
quantity demanded of a commodity similarly a fall in the quantity demanded of
a commodity
Which therefore means that such a good is normal.
Negative =normal
Zero =necessity good
Positive =normal good
Nature of a commodity: If you regard a product as a necessity, then your demand for it will be
inelastic: you’re willing to pay any reasonable price. A change in price of the neccesities may
have a small impact on their quantity demanded e.g. gasoline If you think it’s a luxury, then
your demand is very elastic and it may drop considerably due to an increase in price, e.g. IPL
ticket, car.
Availability of substitutes: The more possible substitutes, the greater the elasticity. Example.
Coke and Pepsi. If the price of coke goes up, people will be tempted to buy Pepsi. The demand
of coke will therefore fall. In case of salt, it has no close substitute and is necessary. its demand
is inelastic.
Proportion of Total expenditure spent: Products that consume a small portion of the consumer’s
income its demand is inelastic, because a change in its price does not make a much difference in
the budget of the consumer Example, a consumer spends a very small proportion of income on
purchase of match boxes. Therefore, even large change in its price will not induce him to
change his level of demand. the other hand the demand for the products on which the
consumer spends a large fraction of their income , a change in their price will have a
considerable effect on the budget and therefore its demand will be elastic
Time period: Elasticity tends to be greater over the long run because consumers have more time
to adjust their behavior and vice-versa.
Number of uses: The greater the number of uses of a commodity, the higher is the price
elasticity of demand. Example. milk can be used to make cheese, butter, curd etc. If its price
rises, it will be put to only important uses like serving the children or for the sick members in the
family.
Possibility of postponement: If the demand for a particular commodity cannot be postponed its
demand will be inelastic, Example medicines, food etc. and vice –versa.
REFERENCES.
1.www.jnc.inc