What-is-Elasticity-of-Demand

What is Elasticity of Demand: Elasticity vs. Inelasticity

 August 10, 2020  Posted in Learning

If you’re doing a major in economics or it is one of your subjects, you’ll come across the term elasticity of Demand. It is the responsiveness of the quantity that a commodity demands to changes in one of the variables on which it depends.

While calculating the elasticity of Demand, there are variables on which it depends:-

  • The price of the concerned commodity
  • Prices of the related commodities
  • Lastly, the consumer’s income

To understand the elasticity of Demand in comparison with the inelasticity, here is the comparative study of the same.

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The elasticity of Demand vs. Inelasticity of Demand 

Elasticity of Demand 

  • The elasticity of Demand refers to the change in Demand when the price/income changes
  • The elasticity coefficient for the elasticity of Demand is more than or equal to 1
  • The graphic curve for it is shallow
  • The commodities represented by it include luxury products
  • The price sensitivity of elastic is more for the elasticity of Demand

Example: Consider a radio or any electrical equipment whose prices fall from 500 to 400 per unit. In turn, the Demand will increase from 100 to 150 units. So, you must mark that as the price decreases, the demand increases.

To further study the various types of elasticity of demands, here are a few of them:-

Price Elasticity

This type of elasticity of demand refers to the response of the quantity that is demanded, changing the price of the commodity. In this term, the consumer’s income, taste, and the prices of all the goods remain unchangeable. 

Income Elasticity 

The second type of elasticity of demand refers to the degree of responsiveness of the quantity with the change in the consumer’s income. 

So, 

EI = Percentage change in quantity demanded / percentage change in income. 

 

Cross Electricity

The cross elasticity of Demand includes two commodities, namely X  and Y. It refers to the change in Demand for commodity x due to a change in the price of commodity Y.

Inelasticity of Demand 

  • Inelasticity of Demand is when a change in the price of the product doesn’t change the Demand
  • The elasticity coefficient for the inelasticity of demand is less than 1
  • The graphic curve for it is steep
  • The commodities represented by it include necessary products 
  • The price sensitivity of elastic is less for the inelasticity of Demand 

Further, one has to know how to change the inelasticity of Demand, whose calculation takes place as % change in demand / % change in price. 

There are five significant factors that determine the demands of an individual. 

The Price, Price of the alternatives, Generated income, Tastes or preferences, and Expectations. To wrap up, the inelastic changes hardly respond to price changes, and the steeper the curve, the more inelastic it is.