S Kumaraperumal

Demand
elasticity
Degree of
responsiveness of
consumers to a price
change.

Chilly demand in TN & AP

P

TN
AP

20

Change in quantity
demanded is more in
AP than in TN
To know how total
revenue changes when
change in price

15

50 60

75

Classification of demand
curves according to their
elasticities
Perfectly inelastic

Perfectly inelastic
(Life saving drugs)
Inelastic

10
5

Perfectly elastic

Ed=0

P TR

Unitary elastic
Elastic
Perfectly elastic

50

Elasticity of demand=
%change in quantity demanded
% change in price

Ed=
D

Classification of demand
curves according to their
elasticities
Relatively elastic

Relatively inelastic

Perfectly inelastic
Inelastic
Unitary elastic

Ed< 1

Ed>1

Elastic
10

78

20

Perfectly elastic

Unitary elastic
10
Ed=1
5

P
TR
50 100

Factors
determining
Demand
Luxury or
elasticity

necessity goods
Percentage of
income
Substitutes
Time

Luxury goods will have elastic

demand necessity goods have

an inelastic demand
Big items in a budget tend to

have a more elastic than

small (1% rise in flat & pen)
Items that can be substituted

easily have more elastic

More elastic in longer the time

Income
elasticity
Ei=
% change in
quantity
demanded / %
change in income
Ei > 1 is income
elastic

Can be positive or negative

(normal or inferior)
Normal goods: % increase in
income will cause % increase
in quantity demanded
Inferior goods: % increase in
income will cause % decrease in
quantity demanded
Cheap whiskey, artificial jewellery

Cross elasticity
Ec=
% change in
quantity
demanded of good
X/ % change in
price of good Y

If X and Y are
Complements then Ec
will be negative
If X and Y substitutes
then Ec will be positive

Elasticity of
supply

Perfectly inelastic(Es=0)
Perfectly elastic (Es= )
Es=
% change in
quantity
supplied / %
change in price

Relatively inelastic

(0<Es< 1)
Relatively elastic (0<Es<
)
Unit supply
elasticity(Es=1)

Elasticity of
supply

(0<Es< )
(0<Es< 1)

Perfectly inelastic (Es=0)

Perfectly elastic (Es= )

(Es=0)

(Es= )

Relatively inelastic
(0<Es< 1)
Relatively elastic (0<Es<
)
Unit supply
elasticity(Es=1)

(Es=1)

Any angle

Factors
influencing
elasticity of
Time factor
supply

Three time period

longer the time , elasticity is
more

Ability to store
the product

Products which can be stored are

more able to react to price rises

Barriers to entry

If degree of entry restriction can

affect the supply and price

Behaviour of
costs as output
changes

If costs of production rise steeply

output rises then reduce the
elasticity