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The more popular types of elasticity of demand are w.r.t. price, income, and cross
(related goods) elasticity of demand.
Price Elasticity
Methods of calculating Price elasticity of demand
1.
Percentage Method:
(% change in Qty demanded)
Ep =
_________________________
(% change in price)
Unit
Inelastic
Perfectly
Perfectly
Ed =
Price
Ed > 1
Quantity
X X
P P
E(p) > 1
E(p) < 1
Price falls
Price rises
T.E
decreases
E(p) = 1
T.E remains
constant
commodity
Alternative
Proportion
commodity
Time
available
xy
p e rc e n ta g e c h a n g e in q u a n tity o f X d e m a n d e d
p e rc e n ta g e c h a n g e in p ric e o f Y
Substitutes
Py Qx
Exy < 0
Complements
Py Qx
% Change in Income
Significance of
Price Elasticity of Demand