1. Elasticity of Demand

2. Definition of Elasticity
A general definition:
• “Elasticity” is a measure of the degree of sensitivity ( or
responsiveness) of one variable to changes in another
variable.
• Elasticity is defined as a ratio of the percentage change
in the dependent variable to the percentage change in
the independent variable
• The price elasticity of Demand : The price elasticity of
demand is a measure of the degree of sensitivity of
demand to changes in the price of product –X.

3. Types in Elasticity of Demand
1. Price Elasticity of Demand (Ep)
2. Income Elasticity of Demand (EI )
3. Cross Elasticity of Demand (Ec)
4. Advertising Elasticity of Demand (Ea)

4. Measurement of Elasticity
1. Perfectly Elastic Demand
2. Relatively Elastic Demand
3. Unity Elastic Demand
4. Relatively Inelastic Demand
5. Perfectly Inelastic Demand

5. Measurements : Types of Elasticity
Measurements of Elasticity
Perfectly
Elastic
Demand
Relatively
Elastic
Demand
Unity
Elastic
Demand
Relatively
Inelastic
Demand
Perfectly
Inelastic
Demand
TypesofElasticityofDemand
Price
Elasticity of
Demand
Perfectly Price
Elasticity of
Demand
Relatively
Price
Elasticity of
Demand
Unity
Price
Elasticity of
Demand
Relatively
Price
Inelasticity
of Demand
Perfectly
Price
Inelasticity
of Demand
Income
Elasticity of
Demand
Cross
Elasticity of
Demand
Advertising
Elasticity of
Demand

6. How to Measure Price Elasticity of Demand
Price elasticity of demand measures the responsiveness of
demand to changes in price. The price elasticity of
demand for a commodity is the rate at which quantity
bought changes as the price changes. It is denoted by (Ep)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P



priceinchangeeoportionat
demandedquantitytheinechangeoportionat
Ep
Pr
Pr


7. Perfectly Price Elasticity of Demand
• It is one in which a no or very small change in price
will cause a large change in amount demanded. A no
or very small rise in price reduces the demand to
zero. A small decrease in price leads to a big
expansion in demand.
(Ep=∞)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P




8. Relatively Price Elasticity of Demand
• The demand is said to be relatively elastic when the
change in demand is more than the change in price.
(Ep>1)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P




9. Unity Price Elasticity of Demand
• In this type of demand a given percentage change in
price leads to exactly the same percentage change in
amount demanded. As there is no change in the
demand and price it is called as unitary demand.
(Ep=1)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P




10. Relatively Price Inelasticity of Demand
• When the change in demand is less than the change
in price, then the demand is said to be inelastic.
(E<1)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P




11. Perfectly Price Inelasticity of Demand
• This is one which shows that whatever the change in
price may be the amount demanded remains same.
(Ep=0)
2 1
1
2 1
1
( )
( )p
Q Q
Q
E
P P
P




12. Problems : Elasticity of Demand
@ Determine the price elasticity of demand given that the
quantity demanded for product M is 1000 units at a price of
Rs. 100 and the price decline to Rs. 70, the quantity
demanded increases to 1100 units.
@ Determine the Income elasticity of demand given that the
quantity demanded for product R is 1000 units at a daily
income of consumer is Rs. 100 and the daily income of
consumer is declined to Rs. 80, the quantity demanded
decreases to 700 units.

13. Types & Measurements: Elasticity of Demand
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