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Elasticity of Demand

Elasticity of Demand

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Published by: chaitu34 on Oct 02, 2009
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06/27/2013

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ELASTICITY OF DEMAND
 
 ELASTICITY OF DEMAND
Elasticity is the proportional (or percent) change in onevariable due to the proportional change in anothervariable. The formula for elasticity is:
E = percentage change in X / percentage change in Y
Elasticity can either be a positive or a negative value.
When the proportional change in one variable is equal tothe proportional change in the other variable, then it iscalled Unit Elasticity. It can be represented as E = 1.
Elasticity can be relatively elastic (E >1), when theproportional change in x is greater than the proportionalchange in y.
Elasticity can be perfectly inelastic (E = 0), when anychange in y will have no effect on x.
Elasticity can be infinity (E = infinity) or perfectly elasticwhen a change in y will have infinite effect on x.
Elasticity can be less than one (E < 1) i.e., relativelyinelastic when the proportional change in x is less thanthe proportional change in y.
 
 price elasticity of demand 
 The
 price elasticity of demand 
 measures the responsiveness of the quantity demanded of a goodor services to a change in the priceof the good or service. The priceelasticity of demand is defined asthe magnitude (absolute value) of the percentage change in thequantity demanded divided by thepercentage change in the price.

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