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Economics > Elasticity Of Demand > Flashcards

Elasticity Of Demand Flashcards

1
Q

What does elasticity of demand mean?

A

Elasticity of demand refers to the degree of responsiveness of quantitiveness of quantity demanded of a commodity to a change in any of its determinants.

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2
Q

What are the three types of elasticity of demand?

A
  1. Price elasticity of demand
  2. Income elasticity of demand
  3. Cross elasticity of demand
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3
Q

What is price elasticity of demand?

A

Price elasticity of demand may be defined as the degree of responsiveness of quantity demanded of a commodity in response to a change in its price.
(OR)
Price elasticity of demand refers to the ratio of the percentage change in the quantity demanded of a commodity to a given percentage change in its price.

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4
Q

Formula for price elasticity:

A

ep= % change in Qty DD/%change in price

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5
Q

State the degrees of price elasticity of demand.

A
  1. Perfectly inelastic demand
  2. Perfectly elastic demand
  3. Unitary elastic demand
  4. Elastic demand
  5. Inelastic demand
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6
Q

PERFECTLY INELASTIC DEMAND

A

When the quantity demanded of a commodity does not respond to a change in its price, then the elasticity of demand is zero.
ep=0

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7
Q

PERFECTLY ELASTIC DEMAND

A

When consumers are prepared to purchase all they can get at a particular price but nothing at all at slightly higher price, then the price elasticity of demand for a commodity is said to be infinite.

ep=infinity

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8
Q

UNITARY ELASTIC DEMAND

A

When a given percentage change in its price of a commodity causes an equivalent percentage change in the quantity demanded, then the elasticity of demand is said to be unitary (or one).
ep=1

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9
Q

ELASTIC DEMAND

A

When the percentage change in the quantity demanded of a commodity exceeds the percentage change in its price, the elasticity of demand is greater than unitary.

ep>1

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10
Q

INELASTIC DEMAND

A

Demand is inelastic when the percentage change in the quantity demanded of a commodity is less than the percentage change in its price.

ep<1

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Economics (3 decks)

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