Demand Elasticity

Elasticity
• Percent change in one variable in
response to a given percent
change in another variable.
Demand Elasticity

• Percentage change in quantity demanded, Q, in

response to given percentage change in the price, at a
particular point on the demand.
• Price Elasticity of demand ε
 How does the quantity
demanded falls in response
to 1% increase in Price?

1% increase in price leads to an ε% change in quantity demanded.

 Elasticities along the Demand Curve

Where a liner demand

curve hits the quantity axis,
On downward sloping
If slope is constant ( where p is 0) increase in
linear demand curve
price does not affect
quantity demanded.

1% increase in Price , Large

Higher Prices, the more -ve
Percent fall in quantity
elasticity of demand.
demanded.
Perfectly Inelastic

At a point where elasticity is 0.

Eg) inelastic steel rod.

Inelastic
• For the quantities between the mid points of linear
demand curve and lower end. Where Demand
elasticity lies between
• 0 and 1 : 0>ε>-1
• Eg) Piece of Rope that does not stretch much.
• Changing Price has little effect.
Unitary Elasticity
• At mid point of linear demand curve
• ε=-1
Elastic

• At prices higher than at mid point of demand curve,

• ε<-1
• Rubber band that stretches substantially when you stretch it.
Perfectly
elastic
• when demand curve hits price
axis, it is perfectly elastic.