Elasticity in Economics

In this article, I teach you the concept of elasticity in economics and types of elasticities. Demand and supply tell us the relationship between price and quantity demanded but failed to let us know how much change will occur with a one-unit e.g. 1 USD change in price.

The elasticity in economics comes into the ground when demand and supply theories failed to tell us the exact change. The concept of elasticity in economics tells us the responsiveness of quantity demanded due to change in price.

Understanding the concept of Elasticity in Economics

The elasticity in economics is responsiveness in quantity demanded because of a change in the price level. To understand the concept let take an example that a person has purchased 1 Kg apples when their price is 2 USD. Now the prices of the apples have been changed and the income of the person is still the same. For instance, the present price of 1 Kg apples is 3 USD and the current quantity demanded by the person is 0.5 Kg. The rate of change at which the quantity demanded decreases because of the increase in the price is known as elasticity in economics.

The same case will also happen when the income of a person increases by keeping prices as constant the quantity demanded by the person increases this responsiveness is also called elasticity in economics.

In simple words, the change in the quantity demanded by the change in prices regardless of the factor which is affecting the prices known as elasticity in economics. This factor may be changed in the prices of substitute, change in input prices, change in income, etc.   

Types of Elasticities

Elasticity has many types but two of them are most important which are elasticity of demand and elasticity of supply. Both of them have further types like elasticity of demand has a price elasticity of demand, income elasticity of demand, cross elasticity of demand, etc. and elasticity of supply has a price elasticity of supply, cross elasticity of supply, etc.

Other types of Elasticities

The other types of elasticities tell us how much change occurs due to change in price either it is too much greater, greater, equal, less or zero. So all the possible choice creates one type and all of them are enlisted below.

• Perfectly elastic demand
• Relative Elastic demand
• Unitory Elastic demand
• Relatively Inelastic demand
• Perfectly inelastic demand

Perfectly Elastic Demand

The Perfectly elastic demand tell us that with the little change in the price the quantity demanded change up to the infinite level. This is not happening in the normal market but it may happen in case of abnormal cases. The perfectly elastic demand curve is hereunder.

In this case, the demand curve is horizontal line and Price Elasticity of Demand is infinity i.e. PED=∞.

Relative Elastic Demand

The relative elastic demand tells us that the change in quantity demanded is more as compared to the change in the price level. For example, the change in the price level is 1 USD and the change in the quantity demanded is more than 1, it may be any decent figure. The schedule and relative elastic demand curve is hereunder.

In this case, the demand curve is downward sloping and Price Elasticity of Demand lies between 1 and ∞ i.e. 1 < PED < ∞.

Unitory Elastic Demand

The unitary elastic demand tells us that the change in the price level is the same as the change in the quantity demanded. For example change in the price is 1 USD then the change in the quantity demanded is 1 Kg (in case of apples). The unitary elastic demand curve is hereunder.

In this case, the demand curve is downward sloping and Price Elasticity of Demand is zero i.e. PED = 0.

Relatively Inelastic Demand

The relative inelastic demand tells us that the change in the quantity demanded is less than the change in the price of the commodity. For example, the change in the price is 1 USD than the change in the quantity demanded is less than 1 Kg (in the case of apples). The schedule and relatively inelastic demand curve are hereunder.

In this case, the demand curve is downward sloping and Price Elasticity of Demand lies between zero and 1 i.e. 0 < PED < 1.

Perfectly Inelastic Demand

The perfectly inelastic demand tells us the no matter how much change occurs in the price level of a specific commodity the demand of that good or commodity will not change. The perfectly inelastic demand curve is hereunder.

In this case, the demand curve is vertical and Price Elasticity of Demand is zero i.e. PED = 0.