ELASTICITY

ELASTICITY

DEFINITION OF ELASTICITY:

A way of measuring some sort of variable’s level of tenderness to a transform within a different changing. In economics, Elasticity is needed in order to measure the transform in purchaser requirement on account of a big change in the good’s selling price. Elasticity identifies the amount of responsiveness associated with two parameters, change in the dependent variable because of change of independent variable.

MEASUREMENT OF ELASTICITY

It can be observed that elasticity can be approximately compared by the comparative flatness of a supply or demand curve. As a result, it creates the method for determining elasticity is similar to the method for determining slope.

To calculate the coefficient for elasticity, Elasticity =

To find out percent change itself, the amount of change in a variable by the primary level of that variable:

Percentage change

For instance, the market for a red t-shirt. When the cost for every red t-shirt is USD5, then Lee is willing to buy 5 t-shirts, and Mik is willing to sell 5 t-shirts. When the cost for every red t-shirt is USD5.50 each, Lee is willing to buy 3 t-shirts, and Mik is willing to sell 10 t-shirts. First, we will solve the particular Lee’s price elasticity of demand:

 

Percentage Change in Quantity = -0.4 = -40%

Percentage Change in Price  = 0.5 = 50%

So that, = -0.8

Take the absolute value to calculate elasticity.

Elasticity of Demand = 0.8

 

Now, to calculate Mik’s price elasticity of supply:

 

Percentage Change in Quantity = 1 = 100%

Percentage Change in Price  = 0.5 = 50%

Elasticity of Supply = 2

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