Price Elasticity and Inelasticity
Price elasticity of demand is a measure of how much the quantity demanded of a good will respond to a change in the price of that good
- If the price-elasticity of demand is greater than 1, then the demand is elastic.
- If equal to 1, then the demand is unit elastic.
- If less than 1, then the demand is inelastic.
Demand is elastic if the percentage change in the quantity demanded is higher than the percentage change of price. - Elastic demand for a good is when the quantity demanded responds considerably to changes in the price
Demand is unit elastic if the percentage change in the quantity demanded equals the percentage change of price. Demand is inelastic if the percentage change in the quantity demanded is less than the percentage change of price. - Inelastic demand for a good is when the quantity demanded responds very slightly to changes in the price
Perfectly elastic demand: When the quantity demanded changes by a very large percentage in response to a near zero percentage change in price Perfectly inelastic demand: When the quantity demanded stays constant, while the price changes. Some factors that influence price-elasticity of demand: - The Availability of Substitutes
- The demand for a good is elastic when a substitute for the good is easy to find
- The demand for a good is inelastic when a substitute for the good is hard to find.
- Necessity and Luxury
- Necessity goods are inelastic because they have poor substitutes
- Luxury goods are elastic because they have many substitutes.
- Narrowly Defined Goods
- Narrowly defined goods are elastic because it is easier to find substitutes
- Broadly defined goods are inelastic
- Elapsed Time
- The longer the time elapsed since the price of a good has changed, the more elastic the demand for that good.
Price elasticity of supply refers to a measure of how much the quantity supplied of a good will respond towards a change in the price of that good - If greater than 1, then the supply is elastic.
- If equal to 1, then the supply is unit elastic.
- If less than 1, then the supply is inelastic.
Price Elasticity - Back to Economics
Inelasticity - Back to SG Learn Online
|
