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Economics: Kinds of Elasticity of Demand - Essay Example

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Economics: Kinds of Elasticity of Demand

Thus, the demand for a given commodity is the horizontal summation of the demands of the individual consumers. In other words the quantity demanded in the market at each price is the sum of the individual demands of all consumers at that price. The responsiveness of the demand in relation to the price or income of the consumer is referred as the elasticity of demand. There are as many elasticities of demand as its determinants. The most important of these elasticities are (a) the price Elasticity, (b) the income elasticity, and (c) the cross elasticity. The concept of elasticity of demand is important in that it s being used by the economists to explain the consumer behaviour in different market conditions. With this background this paper illustrates the importance of different kinds of elasticities of demand and the ways in which they are helpful to the economists to report on the consumer behaivour...
The laws of demand and supply are an important part of in the study of economics. They help the economists to measure the relative changes in the demand due to changes in prices with the concept of elasticity of demand. (Pink Monkey) The price elasticity is a measure of the responsiveness of demand to changes in the commodity's own price. Depending on the magnitude of the changes in demand it can be termed as either point elasticity or arc elasticity of demand. If the changes in the prices are very small, the point elasticity of demand is used as the measure of responsiveness of demand. If the changes in the prices are large then arc elasticity of demand is used as the relevant measure of responsiveness.
The laws of demand and supply form the basic part of economics. However since both demand and supply laws are applicable to all kinds of goods, the relations between demand and supply do serve only to a limited extent in the sphere of economics. It must be noted that the rise or fall in the quantity demanded caused by a small variation in the price may differ significantly for different goods such as in the case of food, automobiles, clothing, machinery items, and hardware materials. Even the changes in the price of land may affect its demand considerably. Hence it becomes important that the exact extent to which the level of demand is affected with respect to a given change in the price level is to be ascertained for individual goods. In fact this is the precise purpose of measuring the price elasticity of demand.
Price elasticity of demand can be measured by percentage, proportion, outlay, and geometric or point elasticity methods. Of these the point elasticity is the most popular method of measuring price elasticity of demand.




2.1 Expression for Price Elasticity of Demand

Thus elasticity of demand can be regarded as the degree of responsiveness, the quantity demanded exhibits in relation to a given change in the price level of any particular commodity. In other words the price elasticity can be expressed as a ratio of proportional change in the quantity demanded to the proportionate change in the pri ...Show more

Summary

Demand is a multivariate function implying that the demand is determined by many factors simultaneously. Some of the most important determinants of the market demand for a particular product are its own price, consumers' income, prices of other commodities, consumers' tastes, income distribution, total population, consumers' wealth, credit availability, government policy, past levels of demand and past levels of income…
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Economics: Kinds of Elasticity of Demand essay example
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