This document discusses measuring income elasticity at a point on an Engel curve. It explains that income elasticity is measured similarly to supply elasticity by calculating the percentage change in quantity demanded divided by the percentage change in income between two points on the Engel curve. The document also briefly mentions applications of elasticity coefficients to economic policy and business decisions.

1. Elasticity II
Dadhi Adhikari
Ace Institute of Management

2. Income elasticity at Engel Curve
• Engel curve shows the relationship
between income and quantity purchased.
• For normal goods Engel curve slopes
upward.
• To measure income
elasticity at point
R we follow the
same procedure as in supply elasticity
Engel Curve
T O B
Income
Quantity
R

3. Supply Elasticity
• Definition: Percent change in quantity
supplied due to one percent change in price
Q
P
P
Q
SupplyofElasticity
s
*
∆
∆
=

4. Measuring supply elasticity
• We want to measure elasticity at
point R
S
T O B
R
OB
TB
E
OB
BR
TBBRQ
P
slope
E
Q
P
P
Q
SupplyofElasticity
s
=
==
∆
∆
=
*
11
*
S
T O B
S
T O B

5. Application of Elasticity
• Concept and coefficient of elasticity have
several application.
• Economic policy-give example from book.
• Business – give example from book

6. Reference
• H.L. Ahuja
• Watson and Getz

7. Reference
• H.L. Ahuja
• Watson and Getz