Elasticity is the percentage change in quantity demanded/supplied with respect to the percentage change in price.

It measures the degree of responsiveness of change in quantity due to change in prices.

Let’s make it more simple

Elasticity = % Δ Q ÷ % Δ P

OR

Elasticity = Percentage Change in Quantity ÷ Percentage Change in Price

0 ≤ Elasticity ≤ 1

Where

0 = Indicates Perfectly Inelastic

1 = Indicates Perfectly Elastic

Elasticity Types

• Price Elasticity
• Income Elasticity
• Cross Elasticity
• Arc Elasticity

Elasticity of Demand

According to law of demand if other factors remains same, the increase in prices of product decreases its quantity demand.  This show the inverse relationship between prices and quantity demand.

It measures the proportional variations in quantity demanded due to proportional variations in price.

  Ed = Percentage Change in Qd ÷ Percentage Change in Price

In above diagram demand curve is negatively sloped and have negative elasticity of demand. At each point on demand curve we have different elasticity, like at mid-point elasticity is equal to unity, above this point it is greater than zero while at lower point less than zero.

Quickly Analyze the nature of good

 

Elasticity Values	Nature of Good
Ed>1	Luxury Good
Ed=1	Normal Good
Ed<1	Basic Good
Ed=0	Neutral Good

Elasticity of Supply

Law of supply shows that if other factors remains same, the increase in prices of products increases the supply of that products. This reveals the positive association between prices and quantity supply.

The above diagram shows that supply curve positive slope and it has positive elasticity.

Elasticity of supply shows the percentage change in quantity supplied due to percentage change in price.

              Es = Percentage Change in Qs ÷ Percentage Change in Price

Elasticity of supply always positive because price and quantity moves in the same direction.