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Published byJeremy Sharp Modified over 8 years ago
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ELASTICITY OF DEMAND Degree of responsiveness of demand to change in any of its determinants is called elasticity of demand
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We have three different concepts of elasticity of demand Price elasticity of demand Cross elasticity of demand and Income elasticity of demand
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Price elasticity of demand Price elasticity of demand or elasticity of demand, is the degree of responsiveness of the demand for commodity to a change in its price. Ed= Percentage change in quantity demanded Percentage change in price Ed=
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Value of Elasticity Coefficients and their Description Value of Elasticity coefficie nt Type of elasticityDescription Ed=0Perfectly InelasticQuantity demanded does not change with price at all Ed<1Inelastic or less than unit elastic % change in demand is less than % change in price
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Ed=1Unit elastic % change in demand is equal to % change in price Ed>1Elastic or more than unit elastic % change in demand is more than % change in price Ed=∞Perfectly elastic Purchasers are prepared to buy all they can obtain at some price and none at all at an even slightly higher price.
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Perfectly Inelastic Q price
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Perfectly Elastic quantity Price
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Unit Elastic
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Inelastic quantity Price
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Elastic quantity price
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Flat and steep curve More generally we can say that elasticity of demand at a common point will be more on a flatter curve than on a steeper curve.
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quantity price d d d, D, R AB C
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Methods of Measurement of Price Elasticity of Demand Total Outlay Method or Total Expenditure Method Point Method and Arc Method
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Total out lay Method Sug ar Clot h Che ese PQTQPQ PQ 181018018101801810180 151116515121801514210 12 14412151801220240
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Point Method Measurement of elasticity on demand curve at a point is known as point elasticity of demand. Ed= Lower segment of the demand curve –Lower segment of the demand curve
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Point Method Quantity price Ed=1 Ed<1 Ed Ed>1 Ed= =0 ∞
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