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Reviewed by Aug 01, 2021| Updated on
Demand elasticity is an economic principle that measures the extent of consumer response to quantity changes demanded as a result of a price change, provided all other factors are equal. Directly speaking, it shows how many products customers are willing to buy as those product prices rise or decrease.
The elasticity is calculated by dividing the percentage that changes in quantity by the percentage price changes in a given period.
To arrive at the elasticity of demand, we have to divide the per cent change in quantity by the per cent change in price. So the elasticity of demand is the percentage change in quantity demanded as a result of a percentage change in a product’s price.
Since demand for certain products is more responsive to changes in prices, demand may be elastic or inelastic. When the demand is elastic for a product, the required quality is highly responsive to price changes. When the demand for a commodity is inelastic, the appropriate quality reacts poorly to changes in prices.
Thus, a change in price will affect the elasticity of a product’s demand. Also, it will have little effect on an inelastic product’s demand.
There are different types of elasticity of demand, and they are:
Very Elastic Demand: Demand is said to be very elastic that even a negligible change in the price of a commodity leads to a considerable extension of the amount demanded of it.
Less Elastic Demand: Even a substantial change in price brings only a small extension in demand.