Elasticity refers to the responsiveness of one economic variable to changes in another. There are several types of elasticity: - Price elasticity of demand measures the responsiveness of demand to price changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. - Income elasticity of demand measures responsiveness of demand to changes in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. - Price elasticity of supply measures responsiveness of supply to price changes. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.

1. ElasticityElasticity
By Hira Saeed.By Hira Saeed.
University Of KarachiUniversity Of Karachi

2. Elasticity
• Elasticity is the measurement of how responsive
an economic variable is to a change in another.
• Responsiveness of household to change in Prices
and Income.
• It Measures the responsiveness in terms of
direction as well as magnitude of change.
• To what extent demand is increasing due to
change in price or income.

3. Price Elasticity Of
Demand
• Responsiveness of demand due to change in
prices.
• it gives the percentage change in quantity
demanded in response to a one percent change
in price (ceteris paribus, i.e. holding constant all
the other determinants of demand, such as
income).
• e > 1-elastic, e < 1-Inelastic, e=1-unitary elastic.

4. Price Elasticity Of
Demand
Types
Own Price ElasticityOwn Price Elasticity
• Percentage change in Quantity demanded of a good due to
change in its price by one percent.
• Own Price elasticity = %Change in quantity demanded of X
%Change in Price of X
• P = QD
• Generally own price elasticity is negative (Since the law of
demand holds generally)

5. Price Elasticity Of
Demand
Cross Price ElasticityCross Price Elasticity
• Percentage change in Quantity demanded of a good due to change
in the price of some other goods by one percent.
• cross price elasticity = %change in quantity demanded of X
%change in the price of good Y
• One change is positive, the other will be
negative.
• In case of complimentary goods, Cross
price elasticity will be negative.
• If the two goods aren't substitutes of
Each other cross price elasticity will be 0
Substitute : Tea and
Coffee, Margarine
and Butter.
Complimentary :sugar
And tea, hot dog and
Hot dog buns.

6. Price Elasticity Of
Demand
%Change in quantity demanded of X
%Change in Price of X
• = ΔQd / ΔP . P1 / Q1
• = Q2- Q1 / P2 – P2 . P1 / Q1
• = 120-100 / 2.20-2.00 . 2.00 / 100
• = 20 / 0.2 . 2.00 / 100
• = 100 . 0.02
• = 2
• Here price elasticity of demand is
elastic because e > 1
• Demand curve is positively leftward
sloped.
120100
2.20
2.00
Quantity demanded
Price

7. Income Elasticity Of
Demand
• Measures the percentage change in the amount of
a commodity purchased per unit of time resulting
from a given percentage change in a consumer’s
income.
• eM = %change in quantity demanded of X
%change in income

8. Income Elasticity Of
Demand
Types of Goods
• When income elasticity is negative, the good is
inferior
• When income elasticity is positive, the good is
normal.
• eM > 0 - Normal Goods
eM > 1 – Luxury
0 < eM < 1 - Necessity
• eM < 0 - Inferior Goods
Thus, a good may be
Luxury at low levels
Of income.
A necessity at inter-
Mediate levels of
Income.
Inferior good at
high Levels of income

9. Income Elasticity Of
Demand

10. Arc Elasticity
• The co-efficient of price elasticity of demand
between two points on a demand curve is called
arc elasticity.
Mid point Elasticity at pointMid point Elasticity at point
AA To BTo B
• Mid point of Q = (200+300) / 2
= 250
• Mid Point of P = (3+4) / 2 = 3.5
• Q % = (100/250) = 40%
• P % = 1/3.5 = 28.57
• PED = 40/-28.57 = - 1.4

11. Point Elasticity
• The coefficient of price elasticity of demand at a
particular point on a demand curve.
We can find elasticity at B for
the Demand curve.
• Quantity increase from
200 to 300 = 100/200 = 50%
• Price falls from 4 to 3 = 1/4 =
-25%
• Therefore PED = 50/ -25 =
–2.0

12. Price Elasticity Of
Supply.
• It measures the percentage change in the
quantity supplied of a commodity per unit of time
resulting from a given percentage change in the
price of the commodity.
• eS = %change in the quantity supplied
%change in price

13. Price Elasticity Of
Supply.
• When the supply curve is positively sloped price
and quantity move in the same direction and e > 0.
• Supply curve is said to be elastic if eS > 1, inelastic
if eS < 1, unitary elastic if eS = 1

14. Price Elasticity Of
Supply.
• eS = %change in the quantity supplied
%change in price
• =ΔQs / ΔP . P1 / Q1
• =Q2 –Q1 / P2-P1 . P1 / Q1
• =120-100 / 2.20-2.00 . 2.00 /
100
• =20 / 0.2 . 2.00 / 100
• =100 . 0.02
• =2
• Here supply curve is said to be elastic
because eS > 1
• Supply curve is upward positively
sloped.