Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in it's price. It is computed as the percentage change in quantity demanded or supplied divided by the percentage change in price. Elasticity can be described as elastic, unit elastic, inelastic.
If quantity demanded is < proportional to the change in price, it is Price Inelastic. Range(0 to -1).
If quantity demanded is > proportional to the change in price, it is Price Elastic. Range (<-1)
In addition to the price elasticity of demand, economists use other elasticities to describe the behaviour of buyers in a market.
- The income elasticity of demand
- The cross-price elasticity of demand
The income elasticity of demand measures how the quantity demanded changes as consumer income changes.
If quantity demanded is < proportional to the change in the income,it is Income Inelastic.
If quantity demanded is > proportional to change in income, it is Income Elastic.
The cross-price elasticity of demand (CPED) measures how the quantity demanded of one good response to a change in the price of another good.
If CPED= negative,both goods are compliments.
If CPED= positive,both goods are substitutes.
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