Elasticity of Demand — Flashcards

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Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is shown by Ed. A higher value means demand responds more to price change.

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The formula is E_{d}=\frac{\text { Percentage change in quantity demanded }}{\text { Percentage change in price }}. It measures how much demand changes in percentage terms when price changes in percen…

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The proportionate method is E_{d}=\frac{\frac{\Delta Q}{Q}}{\frac{\Delta P}{P}}=\frac{\Delta Q}{Q} \times \frac{P}{\Delta P}. It is the same idea as the percentage method, written in algebraic form af…

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Perfectly inelastic demand means quantity demanded does not change at all when price changes. Its value is Ed = 0. The demand curve is vertical and parallel to the Y-axis. Insulin for insulin-dependen…

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Inelastic demand means a large change in price causes a smaller percentage change in demand. Its value is Ed < 1. Necessary goods such as foodgrains, vegetable oil, and salt are examples.

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Unit elastic demand means percentage change in demand is equal to percentage change in price. Its value is Ed = 1. The demand curve is a rectangular hyperbola, and total expenditure remains constant a…

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Relative elastic demand means percentage change in demand is much greater than percentage change in price. Its value is Ed > 1. This is also called elastic demand.

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Perfectly elastic demand means a small change in price causes an infinitely large change in quantity demanded. Its value is Ed = infinity. The demand curve is parallel to the X-axis. It occurs only in…