Thursday, April 22, 2010

Kinds of elasticity of demand

Kinds of elasticity of demand
Broadly speaking,there are three main types of elasticity of demand.They are price elasticity,income elasticity and cross elasticity.
  1. Price elasticity of demand
In general,elasticity of demand means price elasticity of demand.This concept is most popular and most frequently used.Price elasticity means the responsiveness of quantity demanded to the change in price.the price elasticity of demand is defined to be the percentage change in quantity demanded resulting from 1 percent with change in price.The price elasticity sows as what at rate the demand changes with change in price.In the words of C.E.Ferguson -"Price elasticity is the proportionate change in quantity demanded divided by the proportionate change in price."
Ep=Q/P*P/Q=500/-1*10/2000=-2.5
It shows that the quantity demanded increase by 2.5 percent with 1 percent fall in price.The minus sing shows the inverse relationship between price and quantity demanded.In general this sing is not used,since efficient of elasticity of demand.The coefficient and shows elastic,unitary elastic,inelastic,perfectly inelastic and perfectly elastic demand respectively.

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