Demand Elasticity

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

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.

How to Calculate it?

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.

Types of Demand Elasticity

There are different types of elasticity of demand, and they are:

    • Infinite or Perfect Elasticity of Demand*: The elasticity of demand is infinite/perfect, even for a minimal fall in the price of the commodity leads to an infinite extension in demand for it.
    • Perfectly Inelastic Demand*: Even a great rise or fall in the price of the commodity in question keeps its demand absolutely unchanged.
  • 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.