Elasticity measures the extent to which demand changes in response to a change in price. There are different degrees of price elasticity including perfectly elastic, perfectly inelastic, unitary elastic, relatively elastic, and relatively inelastic demand. Cross elasticity and income elasticity also measure responsiveness of demand but to other factors like substitute goods and consumer income levels respectively. Methods for measuring price elasticity include the total expenditure method, percentage method, point method, arc elasticity, and revenue method.

1. Elasticity of Demand

3. Elasticity – the concept If price rises by 10% - what happens to demand? We know demand will fall By more than 10%? By less than 10%? Elasticity measures the extent to which demand will change

4. Definitions

5. Formula

6. Degrees of Price Elasticity of demand

7. 1. Perfectly Elastic Demand It is a situation where a little change in price will cause an infinite change in Demand.

8. 2.Perfectly Inelastic Demand It is a situation in which a change in price produces no change in the quantity demanded.

9. 3.Unitary Elastic Demand It is a situation when percentage change in price is same as change in quantity demanded.

10. 4. Relatively Elastic Demand It is a situation when percentage change in quantity demanded is greater then percentage change in price.

11. 5. Relatively Inelastic Demand It is a situation where percentage change in quantity demanded is less than price

16. Cross Elasticity of Demand

17. Degrees of Cross Elasticity of Demand Positive :

18. Negative

20. Income Elasticity of Demand

21. Degrees of Income Elasticity of Demand 1)Positive Income Elasticity of Demand :

22. Positive Income Elasticity of Demand can be of three types

23. 2) Negative Income Elasticity of Demand

24. 3)Zero Income Elasticity of Demand

26. Methods to measure Price Elasticity of Demand

27. 1.Total Expenditure Method Prof. Marshall has evolved this method. According to this method , Elasticity of Demand can be measured by considering the change in price and the subsequent change in the total quantity of goods purchased and the total amount of money spent on it.

30. Graphical Representation

31. 2. Proportionate or Percentage Method

32. 3. Point Method This method was also suggested by Prof. Marshall and it takes into consideration a straight line demand curve and measures elasticity at different points on the curve.

33. 1. Linear Demand Curve

34. 2. Non-Linear Demand Curve

35. 4. Arc Elasticity of Demand According to Leftwitch, “When elasticity is computed between two separate points on a demand curve , the concept is called Arc Elasticity.”

37. Formula for Arc Elasticity of Demand

38. 5. Revenue Method Mrs. Joan Robinson has given this formula. She says Elasticity of demand can be measured with the help of average and marginal revenue.