Elasticity

By Anonymous -
While the laws of demand and supply state that the quantity demanded and supplied will change with a price change, it is very important to know by how much the quantity demanded and supplied changes. Elasticity refers to responsiveness. A strong response (more than proportional response) to a price change is known as elastic demand or supply.

A weak response (less than proportional response) to a price change is known as inelastic demand or supply.

A coefficient (number) of elasticity can be calculated.

A coefficient of more than one - ELASTIC

A coefficient of less that one - INELASTIC

Formula 1
                    % changes in quantity / % changes in price

Example:


If the quantity demanded of a good increased by 600 from 1000 as a result of its price falling from $20 to $12, what is the coefficient of elasticity?
       60% / 40% = 1.25
The product has elastic demand.

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