L5: Demand & Supply Elasticity

• Elasticity

  • measures the responsiveness of one variable to a certain change of another variable.
• Elasticity of Demand

  • It is the degree of responsiveness of quantity demanded to a change in price.
• Type of Price Elastic Demand

  1. Elastic
  2. Inelastic
  3. Unit Elastic
  4. Perfect Elastic
  5. Perfect Inelastic
• Elastic

  • when the elasticity coefficient is greater than one.
  • sensitive in changing price.
  • ε > 1
• Inelastic

  • when the elasticity coefficient is less than one.
  • insensitive in changing price.
  • ε < 1
• Unit Elastic

  • when the elasticity coefficient is equal than one.
  • ε = 1
• Perfect Inelastic

  • when the quantity demanded does not respond to any changes in price. It has a coefficient of zero.
  • ε = 0
• Perfect Elastic

  • when demand is totally responsive to changes in price
  • ε = ∞