Page 49 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics Tanima Dutta, Lovely Professional University

Notes Unit 4: Elasticity of Demand

CONTENTS

Objectives
Introduction
4.1 Concept of Elasticity: An Introduction
4.2 Price Elasticity of Demand
4.3 Income Elasticity of Demand

4.4 Cross Elasticity of Demand
4.5 Summary
4.6 Keywords
4.7 Self Assessment

4.8 Review Questions
4.9 Further Readings

Objectives

After studying this unit, you will be able to:

Define elasticity of demand
Identify the factors affecting demand elasticity
Describe price elasticity of demand
Explain income elasticity of demand
Discuss the concept of cross elasticity of demand

Introduction

Elasticity is the measure of responsiveness. It is the ratio of the percent change in one variable to
the percent change in another variable. The key thing to understand is that we use elasticity when
we want to see how one thing changes when we change something else. How does demand for a
good change when we change its price? How does the demand for a good change when the price
of a substitute good changes?
Elasticity varies among products because some products may be more essential to the consumer.
A good or service is considered to be elastic if a slight change in price leads to a sharp change in
the quantity demanded or supplied. Usually these kinds of products are readily available in the
market and a person may not necessarily need them in his or her daily life.

Example: Air conditioners, televisions, movie tickets, branded clothes etc.

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