This document defines key economic terms related to elasticity, including: - Price elasticity of demand and supply, and types like price elastic, inelastic, unitary elastic and perfectly elastic demand and supply. - Determinants of price elastic demand and supply like necessity vs luxury goods and time period. - Other elasticities like income and cross elasticity of demand. - Economic sectors like primary, secondary and tertiary sectors. - Government revenue and firm's revenue. - Time periods for production like immediate, short and long run.

1. Elasticity Price elasticity of demand
(PED)
Price elastic demand
Price inelastic demand Unitary inelastic demand Perfectly price elastic demand
Perfectly price inelastic
demand
Determinants of price elastic
demand
Cross elasticity of demand
(XED)
Income elasticity of demand
(YED)
Income elastic demand Income inelastic demand
Firm’s Revenue Elasticity
Key Terms
Government revenue
Primary sector / primary
commodities
Manufacturing sector Tertiary sector or service
sector
Price elasticity of supply (PES) Price elastic supply Price inelastic supply
Unitary elastic supply Perfectly price elastic supply Perfectly price inelastic supply
Determinants of price elastic
supply
Immediate time period Short run
Long run24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

2. Elasticity
Elasticity refers to responsiveness of one variable to proportionate
change in another variable.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

3. Price elasticity of demand (PED)
Price elasticity of demand is a measure of responsiveness of quantity
demanded of a product to proportionate change in the price of that
product.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

4. Price elastic demand
Demand is said to be price elastic if proportionate change in quantity
demanded of a product is greater than proportionate change in price
of that product. Here PED > 1. When the product experiences price
elastic demand then its demand curve is relatively flatter.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

5. Price inelastic demand
Demand is said to be price inelastic if proportionate change in quantity
demanded of a product is smaller than proportionate change in price
of a that product. Here PED < 1. When the product experiences price
inelastic demand its demand curve is relatively steeper.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

6. Unitary inelastic demand
Demand is said to be unitary elastic if proportionate change in
quantity demanded of a product is equal proportionate change in
price of a that product. Here PED = 1. When the product experiences
unitary elastic demand then its demand curve is like rectangular
hyperbola or arch.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

7. Perfectly price elastic demand
When quantity demanded of a product changes without any change in
the price of that product, then the demand of that product is said to
be perfectly price elastic. Here PED = ∞ or n.d.. When the product
experiences perfectly price elastic demand then its demand curve is
parallel to horizontal axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

8. Perfectly price inelastic demand
When quantity demanded of a product does not change at all in
response to any change in the price of that product, then the demand
of that product is said to be perfectly price inelastic. Here PED = 0.
When the product experiences perfectly price inelastic demand then
its demand curve is parallel to vertical axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

9. Determinants of price elastic demand
Factors affecting price elasticity of demand of a product are referred as
determinants of PED. For example if the product in question
represents necessity then demand of that product will be price
inelastic whereas if it represents luxury then demand of that product
will be price elastic.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

10. Cross elasticity of demand (XED)
Cross elasticity of demand measures the responsiveness of quantity
demanded of a product to proportionate change in the price of
another product. If the 2 goods in question are substitute, then their
XED will be positive where as if they are complementary then their
XED will be negative. XED of unrelated goods is equal to zero.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

11. Income elasticity of demand (YED)
Income elasticity of demand measures the responsive of quantity
demand of a product to proportionate change in the income of its
consumers. YED for normal goods is positive while YED for inferior
goods is negative.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

12. Income elastic demand
When the proportionate change in quantity demand of a product is
greater than proportionate change in the income of consumer of that
product , then the demand of that product is said to be income elastic.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

13. Income inelastic demand
When the proportionate change in quantity demand of a product is
smaller than proportionate change in the income of consumer of that
product , then the demand of that product is said to be income
inelastic.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

14. Firm’s Revenue
Firms’ revenue refers to the amount of sales proceeds of the firm. It is
calculated by multiplying the number of units of the product sold with
the price per unit of the product. (TR = P X Q)
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

15. Government revenue
Government revenue refers to the amount received by the
government to meet its expenditure from various sources which
includes: direct and indirect tax collections, fines and penalties, profit
from public sector undertakings, sales proceeds from the transfer of
ownership national assets &/or public sector undertakings, interest on
loans, entry fee from visitors national monuments etc.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

16. Primary sector / primary commodities
Everything that is extracted from the land is considered as primary
goods or primary commodities or commodities. It includes
agricultural, fishing, oil, coal, mineral, forestry etc. Firms operating in
primary sector are involved with the extraction, harvesting &
conversion of natural resources.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

17. Manufacturing sector
It’s also referred as secondary sector. Manufactured goods are man-
made goods. They are produced by transforming primary goods into
finished goods. They include: electronics, automobiles, books and
stationery, processed food, clothing, buildings etc. Firms operating in
the secondary sector are involved in the manufacturing or
construction of products.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

18. Tertiary sector or service sector
Service sector includes non-tangible economic goods like banking,
insurance, transportation, education, hospitability, healthcare
entertainment etc whose consumption indicates improvement in
standard of living of the consumer. Firms operating in the tertiary
sector specialise in providing services to their customers.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

19. Price elasticity of supply (PES)
Price elasticity of supply is a measure of responsiveness of quantity
supplied of a product to proportionate change in the price of that
product.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

20. Price elastic supply
Supply is said to be price elastic if proportionate change in quantity
supplied of a product is greater than proportionate change in price of
that product. Here PES > 1. When the product experiences price elastic
supply then its supply curve starts from y-axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

21. Price inelastic supply
Supply is said to be price inelastic if proportionate change in quantity
supplied of a product is smaller than proportionate change in price of
a that product. Here PES < 1. When the product experiences price
inelastic demand its supply curve starts form x-axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

22. Unitary elastic supply
Supply is said to be unitary elastic if proportionate change in quantity
supplied of a product is equal proportionate change in price of a that
product. Here PES = 1. When the product experiences unitary elastic
supply its supply curve pass through from origin.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

23. Perfectly price elastic supply
When quantity supplied of a product changes without any change in
the price of that product, then the supply of that product is said to be
perfectly price elastic. Here PES = ∞ or n.d.. When the product
experiences perfectly price elastic supply then its supply curve is
parallel to horizontal axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

24. Perfectly price inelastic supply
When quantity supplied of a product does not change at all in
response to any change in the price of that product, then the supply of
that product is said to be perfectly price inelastic. Here PES = 0. When
the product experiences perfectly price inelastic supply then its supply
curve is parallel to vertical axis.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

25. Determinants of price elastic supply
Factors affecting price elasticity of supply of a product are referred as
determinants of PES. For example “Time Period”, supply of a product is
perfectly price inelastic in immediate time period, while in short-run
supply is price inelastic and in long-run supply is price elastic.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

26. Immediate time period
During immediate time period all the factors of production are fixed or
constant.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

27. Short run
Short-run is time period in which all the factors of production are
variable but one.
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Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India

28. Long run
Long-run is a time period in which all the factors of production are
variable.
24-09-2018
Sachin Sachdeva, Dhirubhai Ambani International School,
Mumbai, India