What is Elasticity ?

Elasticity is the measurement of how an economic

variable responds to a change in another.

If I lower the price of a If I raise the price of one

product, how much good, how will that
more will sell?" affect sales of this other
good

Elasticity refers to the degree of responsiveness in

supply or demand in relation to changes in price.
 Elasticity of Demand
Elasticity of Demand measures the responsiveness
of Quantity Demanded (QD) of a good to the
change in the Price of the good (P).

Elasticity of demand =
% change in QD / % change in P.

Example: Suppose the Fees of a MBA education rises in all

parts of India. We observe that the admissions taken
(quantity demanded) may decline.
 Elasticity of Supply
The elasticity of supply measures the
responsiveness of the Quantity Supplied (QS) to a
change in the Price (P) of a good

Elasticity of Supply =
(% change in QS) / (% change in P)

Example: As demand for MBA Education increases, the

Fees will rise and the Institutes offering MBA (quantity
supplied) will also increase in response. How fast it
increases depends on the elasticity of supply.
 Factors Affecting Elasticity
Elasticity is affected by:
• Innovation
• Competition
• Need
• Nature of product
• Price
• Income levels
• Taxes
• Trends
• Choices.
 Factors Affecting Elasticity
Factors Elastic/ Inelastic Reason
Number of substitutes available Elastic PGDM has more subjects
which adds value
Price/ Income ratio Inelastic Educational Load Facilities,
free-ships
Necessity of the course Elastic If the job opportunities are
less the demand will
decrease for MBA
Time Factor Elastic If the course of duration is
more people would prefer
job
Variation in Course Elastic Extensive and double
specialisation courses can
decrease demands for
MBA