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Degrees of Elasticity

Elasticity refers to the responsiveness of quantity demanded to changes in price. There are different degrees of elasticity - perfectly inelastic means quantity does not change with price changes, inelastic means quantity is unresponsive, and elastic means quantity is very responsive. The price elasticity of demand coefficient quantifies the relationship and will be negative. Factors like substitutes, expenditure percentage, time, and necessity affect a good's elasticity.

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403 views9 pages

Degrees of Elasticity

Elasticity refers to the responsiveness of quantity demanded to changes in price. There are different degrees of elasticity - perfectly inelastic means quantity does not change with price changes, inelastic means quantity is unresponsive, and elastic means quantity is very responsive. The price elasticity of demand coefficient quantifies the relationship and will be negative. Factors like substitutes, expenditure percentage, time, and necessity affect a good's elasticity.

Uploaded by

Fiona Usher
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ELASTICITY

Price elasticity of demand coefficient- the price elasticity of demand


coefficient will always be negative once there is a negative of inverse
relationship between price and quantity demanded. (two variables do the
opposite thing. If one increases, the other decreases.

 Degrees of elasticity
 
The degree of elasticity describes how responsive quantity demanded is to changes
in price. It is the range of possible elasticity of demand coefficients for a good or
service.
 
Elastic – If quantity demanded is very responsive to a change in price.
 
Inelastic – If quantity demanded is very unresponsive to changes in price.
Degrees of elasticity of Meaning Elasticity of demand
demand coefficient

Perfectly inelastic

The percentage of change in quantity demanded is zero PED = 0


Fairly inelastic

The percentage of change in quantity demanded is less than the percentage change
in price 0 < PED < 1
Unitary elasticity

The percentage change in quantity demanded is equal to the percentage change in


price. PED = 1
Fairly elastic

The percentage change in quantity demanded is greater than the percentage change
in price. 1 < PED < infinity
Perfectly elastic

Quantity demanded changes when there is no change in price. PED = infinity


Perfectly inelastic demand. Price increases from P to P1 (or
decreases from P1 to P) and quantity demanded remains the
same, at Q. Quantity demanded is therefore totally unresponsive
to changes in price. PED is equal to zero.
Fairly inelastic demand, price increases from P to P1 (or
decreases from P1 to P) and quantity demanded decreases
(increases) by a less than proportionate amount. Quantity
demanded is therefore not very responsive to changes in price.
Unitary elasticity-Price increases from P to P1 (or decreases from
P1 to P) and quantity demanded decreases (increases) by the same
proportion. Quantity demanded therefore responds to price by the
same proportion as the change in price.
Fairly elastic demand- Price increases from P to P1 (or decrease
from P1 to P) and quantity demanded decreases (increases) by a
more than proportionate amount. Quantity demanded is therefore
fairly, or even very responsive to changes in price.
Perfectly elastic demand-Quantity demanded changes (Q
to Q1) without there being a change in price. Quantity
demanded therefore changes totally irrespective of
changes in price.
 Factors affecting the price elasticity of demand
 
 Price of the good
 Number and closeness of substitutes for the commodity
 Price of the commodity as a percentage of total expenditure
 Adjustment time
 Habit
 The degree of necessity of the good
 The number of uses of the good
 The definition of the good

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