This document discusses the measurement of elasticity, including: 1. Defining elasticity of demand as the responsiveness of quantity demanded to changes in price or other factors. 2. Describing the three main types of elasticity - price elasticity, income elasticity, and cross elasticity. 3. Explaining the different categories of price elasticity, from perfectly elastic to perfectly inelastic demand, and providing examples of goods that fall under each category.

1. Measurement
of Elasticity
This Presentation on
Measurement of elasticity was
prepared
By
Mr.Prem Raj Bhatta
Nepal Western Academy
Dhagadhi-2 , Kailali, Nepal
This Topic Contains:
#Meaning of Elasticity of Demand,
#Types of Elasticity of Demand,

2. 1. Meaning of Elasticity of Demand
Elasticity of demand refers to the responsiveness of
dependent variable to the change in independent variable. It is a
measure of how much the quantity demanded of a commodity
responds to a change in the price of the commodity, income of the
consumer, prices of related goods etc.
In other words, elasticity of demand refers to the ratio of
percentage change in quantity demanded of a commodity to the
percentage change in any determinant of demand.
Elasticity of demand can also be expressed as follows;
풆풅= - % 풄풉풂풏품풆 풊풏 풒풖풂풏풅풊풕풚 풅풆풎풂풏풅풆풅
% 풄풉풂풏품풆 풊풏 풂풏풚 풅풆풕풆풓풎풊풏풂풏풕 풐풇 풅풆풎풂풏풅
It’s a sensitivity or responsiveness of demand to the change in an
independent variable, or…
It is the result calculated as the percentage change in demand
divided by percentage change in an independent variable

3. 2-Types of Elasticity of Demand
Elasticity of demand is of three types.
• Price Elasticity of Demand
• Income Elasticity of Demand
• Cross elasticity of Demand
2.1. Price Elasticity of Demand
• Price elasticity of demand is a measure of how much the quantity
demanded of a commodity responds to a change in the price of that
commodity. In other words, it is the radio of the percentage change in
quantity demanded of a commodity to the percentage change in its
price, other things being equal.
• It is expressed as follows;
풆풑= - % 풄풉풂풏품풆 풊풏 풒풖풂풏풕풊풕풚 풅풆풎풂풏풅
% 풄풉풂풏품풆 풊풏 풑풓풊풄풆

4. It is the percentage
change in quantity divided
by percentage change in
price, or
Responsiveness of
demand to changes in
price.
Mathematically, price
elasticity of demand
is expressed as follows;
ep=−
Q2 −Q1
Q1
X 100
P2−P1
P1
X 100
ep=−
ΔQ
Q1
ΔP
P1
ep=−
ΔQ
ΔP
X
P1
Q1
Where;
ΔQ = Change in Quantity
ΔP = Change in price
P1 = Initial Price
P2 = New price
Q1 = Initial quantity
Q2 = New quantity

5. For example, Suppose the
quantity demanded of sugar
was 200 kg at Rs,50 per kg.
when price rose up to Rs. 60
per kg, demand for sugar
decreased to 180 kg.
Solution,
Initial quantityQ1=200kg,
New quantityQ2=180 kg
Initial price P1=50
New price P2 = 60
ΔQ= 180 – 200
= - 20
ΔP = 60 – 50
= 10
Here,
ep= - ΔQ
ΔP x P1
Q1
Substitute the values in
the above formula.
5

6. 푒푝 =- −20
10 x 50
200
= 0.5 ans.
Note:- 푒푝 or the coefficient of price elasticity of demand
is always negative because when price changes, demand
moves in opposite direction. But the negative sign (- ) is
ignored while using the coefficient.

7. * 2.1.1-Types of Price Elasticity of Demand
Price elasticity of demand is generally divided under the
following sub headings;
1. Perfectly Elastic Demand
2. Relatively Elastic Demand, or More than unity (one)
3. Unitary Elastic Demand, or Equal to unity (one)
4. Relatively Inelastic Demand, or Less that Unity (one)
5. Perfectly Inelastic Demand
All these types of price elasticity demand have been explained as
under.

8. 1- Perfectly elastic Demand (푒푝= ∞)
Price elasticity of demand is said to be
perfectly elastic when a small reduction in
prices causes the buyers to increase the
quantity demanded from zero to all they
wanted and a small rise in price makes them
cut in demand completely.
The demand in such a case hyper-sensitive
and elasticity of demand is infinite. Such a
price elasticity of demand is rare in actual
life.
The following figure shows the nature of
perfectly elastic demand. In the figure, at per
unit price Rs.11 demand is zero unit and a
fall in price by Rs. 1 has caused an increase
in demand by 100 units.
Here, P1=11, P2=10 ,Q1=0 & Q2=100
Fig-1
D D
Y
price
11
ΔQ = 100 & ΔP=1
푒푝 = - Δ퐐
Δ퐏
X
퐏ퟏ
퐐ퟏ
푒푝= −
ퟏퟎퟎ
ퟏ
X
ퟏퟏ
ퟎ
푒푝= ퟏퟏퟎퟎ
ퟎ
푒푝 = ∞ ans.
X
100
10
0
Quantity

9. 2-Rlatively Elastic Demand (풆풑 > ퟏ)
Price elasticity of demand said to be
relatively elastic or greater than one when the
percentage change in quantity demanded is
greater than the percentage change in price.
Relatively elastic demand is shown in
figure-2 . In the figure, quantity demanded is
5 unit at Rs. 10, when per unit price falls to
Rs.5, demand will rise to 15 units.
The percentage change in price is
50% and percentage change in quantity
demanded is 200%. Elasticity of demand
(푒푝) is 4, which is greater that one (4>1).
Here, given Q1=5, Q2=15
P1=10, P2=5
ΔQ= Q2-Q1, 15-5, 10
ΔP= P2-P1, 5-10, -5
10
5
A
50% B
200%
P
0 5 10 15
Q
Quantity
Price
Fig - 2

10. Fig -3
10
푒푝= - ΔQ
ΔP
X
P1
Q1
푒푝= - 5
−5 x 10
10
푒푝= 1 Ans.
Or, 푒푝=
50%
50%
푒푝= 1
3- Unitary Elastic Demand (풆풑=1)
• Price elasticity of demand is said to be unitary or
equal to one when the percentage change in
quantity demanded equals to the percentage
change in its price. It is shown in the figure-3.
• The figure shows that the initial price is Rs. 10 and
at this price quantity demanded is 10 units. When
the price falls to Rs, 5, quantity demanded extents
to 15 units. It means the change in quantity
demanded(50%) is equal to the change in
price(50%).
Given, Q1=10, Q2=15, P1=10, P2=5
• %change in price=(P2-P1)/P1 X 100
• =(5-10)10 X 100
• = 50%
• %change in demand=(Q2-Q1)Q1X100
• = (15-10)10X100
• = 50%
P
Q
A
B
D
D
10 15
5
0
50%
50%
Price
Quantity
Note :- ΔQ=Q2-Q1 & ΔP=P2-P1

11. Fig -4
10
4
60%
50%
푒푝 = - Δ푄
Δ푃
X
푃1
푄1
푒푝 = - 5
−6 x 10
10
푒푝 = 0.83 ans.
Here, 푒푝 < 1
4- Relatively Inelastic Demand (풆풑< 1)
Price elasticity of demand is said to be
relatively inelastic or less than unity, when the
percentage change in quantity demanded is less than
that of the percentage change in price. It is shown in
the figure – 4.
The figure shows that quantity demanded of
the commodity is 10 units at the initial price Rs.10 and
a fall in the price from Rs. 10 to 4 causes an increase
in demand from 10 to 15 units. The quantity demanded
has changed by 50% whereas the price has changed
by 60%. The percentage change in demand is less that
that of the percentage change in price.
Given, QI=10, Q2=15, P1=10 & P2= 4
% change in demand ΔQ= (Q2-Q1)/Q1 x100
= (15-10)/10 x100
= 50%
%change in price ΔP=(P2-P1)/P1x 100
= (4-10)/10 x 100
= - 60%0r 60%
Q
P
D
D
A
B
0
5 10 15
Price
Quantity
Note:- ΔQ =Q2-Q1 & ΔP=P2-P1

12. Fig-5
4
2
푒푝= -
Δ푄
Δ푃
A
B
X
푃1
푄1
푒푝= - 0
50
X
4
10
푒푝= 0 ans.
5- Perfectly Inelastic demand (풆풑= 0)
• Price elasticity of demand is said to be perfectly
inelastic when quantity demanded of a commodity
remains unchanged or unresponsive even if there is
any change in price. The nature perfectly inelastic
demand has been shown in the figure- 5.The figure
shows that initial quantity demanded of a commodity is
10 units at initial price Rs. 4 but there is no change or
zero percent change in quantity demanded even if the
price falls from Rs. 4 to 2 by 50%. Hence, quantity
demanded is perfectly inelastic or equal to zero.
• Given, Q1=10, Q2=10, P1=4 & P2=2
% change in demand ΔQ=(Q2-Q1)/Q1X100
• =(10-10)/10X100
• = 0%
%change in price ΔP=(P2-P1)/P1X100
• =(2-4)/4X100
• =-50% or 50%
Q
P
D
D
0
10
Quantity
Price
50%
푒푝= 0%
50%, 표푟, 푒푝=0

13. Table showing elasticity of various goods
*
Let’s summarize the slope of demand curves
1- perfectly elastic (horizontal)
2- relatively elastic (flatter)
3- unitary elastic (steeper)
4- relatively inelastic (more steeper)
5- perfectly inelastic (vertical)
Types of price elasticity of
demand
Variety of goods
1-Perfectly elastic No, practical importance, rare use
2- Relatively elastic Luxurious goods and goods having close substitutes
3- Unitary elastic No specific goods
4- relatively elastic Goods of daily uses and goods having no close substitutes
5- perfectly inelastic most necessary goods and services, like medicine, drugs

14. Fig- 6
A
B
D
D
P
Q
6
4
0 80 120
3- Midpoint Method of Calculating Price Plasticity
If we try to calculate the price elasticity of demand
between two points on a demand curve, we will face
an annoying problem; that is, the elasticity from
point A to point B seems different from the elasticity
from point B to point A. For example, consider the
figure-5 and following calculations.
From point A to B ΔP=(6-4)/4x100=50%
ΔQ=(80-120)/120x100=33.33%
From point B to A ΔP=(4-6)/6x100=33.33%
ΔQ=(120-80)/80x100=50%
From point A to B 푒푝= 33.33% / 50%
= 0.66
From point B to A 푒푝= 50% / 33.33%
= 1.5
It is seen in the above calculations that when we
move from point A to B and from point B to A on the
same demand curve, the coefficient of price
elasticity of demand differs. This problem is avoided
by using midpoint or average method of calculating
elasticity.

15.  To calculate elasticity by midpoint or average or midway method,
the following formula is applied.
푒푝 = -
푄2−푄1
(푄2+푄1)/2
푥 100
푃2−푃1
(푃2+푃1)/2
푥 100
푒푝 = - Δ푄
Δ푃
x
푃+푃1
푄2+푄1
Now, from point A to B ΔQ=80-120, =-40
ΔP=