Elasticity in Microeconomica

Meaning of Elasticity

“The term Elasticity expresses the degree of correlation between demand and Price”

There is an inverse relation between demand and price. A change in price leads generally to a change of demand. This attribute of Demand by virtue of which it stretches or contracts under the pressure of a change in price is known as elasticity of Demand.

Elasticity of demand is the measure of the responsiveness of demand to changing prices. To be more exact, “The elasticity of demand is a measure of the relative change in account purchased in response to a relative change in price on a given demand curve.”

– MayerA.L.–Elements of Modern Economic(1951) p.67.

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Another precise definition is by Mrs. Joan Robinson thus: “ The elasticity of demand, at any price or at any output, is the proportional change of amount purchased in response to a small change in price, divided by the proportional change of price”

It may be carefully noted that elasticity depends primarily on proportional or percentage changes and not on absolute changes in price and quantity demanded.

Classification of Elasticity of Demand

From the Viewpoint of Elasticity demand may be two types: -

[pic] Elastic demand

[pic] Inelastic demand

Elastic Demand:

The change of demand along with the change of price is not always equal. When the rate of change in demand is greater than the rate of change in price is said to be Elastic demand. Elastic demand may alternatively be regarded to as elasticity greater than one. We can explain the elastic demand by graphically.

Here, when the price is op then the demand is om. When Price increased at the point OP1 then the demand decreased at the point M1. Here we can see that the change of price PP1 is less than the change of demand mm1. So we can say this an elastic demand. In Elastic demand the demand carve become less erect.

The Elastic demand is...