Elasticity
What is elasticity of demand and its types?
Elasticity of demand measures the responsiveness of quantity demanded to changes in price or other factors. The types of demand elasticity include price elasticity of demand (PED), income elasticity of demand (YED), and cross-price elasticity of demand (XED). PED measures the responsiveness of quantity demanded to changes in price, YED measures the responsiveness to changes in income, and XED measures the responsiveness to changes in the price of related goods.
How is price elasticity of demand calculated?
Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. The formula for price elasticity of demand is: (Percentage change in quantity demanded) / (Percentage change in price). The resulting value indicates the responsiveness of demand to price changes. If the value is greater than 1, demand is considered elastic, indicating that quantity demanded is sensitive to price changes. If the value is less than 1, demand is considered inelastic, indicating that quantity demanded is less responsive to price changes.