In economics, elasticity refers to the sensitivity of one economic variable to changes in another. Specifically, it is the measure of how much a given variable responds to a change in another variable. For example, the elasticity of demand for a product is a measure of how much the quantity of the product that consumers are willing to buy changes in response to a change in the product’s price. The concept of elasticity is important in economics because it helps economists understand how changes in one variable can affect other variables in the economy.
Formulae of calculating Elasticity
There are several different formulas that can be used to calculate elasticity in economics, depending on the specific type of elasticity being measured. For example, the formula for the elasticity of demand is:
Elasticity of demand = (% change in quantity demanded) / (% change in price)
Alternatively, the formula for the elasticity of supply is:
Elasticity of supply = (% change in quantity supplied) / (% change in price)
In both of these formulas, a negative result indicates that the relationship between the two variables is inverse, meaning that an increase in one variable leads to a decrease in the other. A positive result, on the other hand, indicates that the relationship is direct, meaning that an increase in one variable leads to an increase in the other.
So what mean by elastic, inelastic and Unitary?
When discussing elasticity in economics, the terms “elastic,” “inelastic,” and “unitary” are used to describe the degree to which a given variable responds to changes in another variable.
An elastic variable is one that responds significantly to changes in another variable. For example, if the price of a product increases and the quantity of the product demanded by consumers decreases significantly in response, the demand for the product would be considered elastic.
An inelastic variable, on the other hand, is one that does not respond significantly to changes in another variable. For example, if the price of a product increases and the quantity of the product demanded by consumers does not change significantly in response, the demand for the product would be considered inelastic.
A unitary elastic variable is one that responds proportionally to changes in another variable. In other words, a unitary elastic variable will change by the same percentage as the variable it is responding to. For example, if the price of a product increases by 10% and the quantity of the product demanded by consumers decreases by 10% in response, the demand for the product would be considered unitary elastic.
What’s the “Law of Demand”?
The law of demand is a fundamental principle of economics that states that, all other things being equal, the quantity of a product or service that consumers are willing to buy is inversely related to its price. In other words, as the price of a product or service increases, the quantity of the product or service that consumers are willing to buy will decrease. This relationship is represented by a downward-sloping demand curve in economics.
The law of demand is based on the assumption that consumers are rational and will make decisions based on the cost and benefits of their actions. For example, if the price of a product or service increases, the benefit of consuming that product or service decreases, so consumers will be less willing to buy it.
The law of demand is an important concept in economics because it helps to explain how prices are determined in a market economy. It also helps to explain how changes in the price of a product or service can affect the quantity of the product or service that is demanded by consumers.
What’s the relationship between Revenue and price elasticity?
The relationship between revenue and price elasticity is an inverse one. Specifically, if the elasticity of demand for a product or service is high (i.e. the demand is elastic), a decrease in the price of the product or service will result in an increase in total revenue for the seller. On the other hand, if the elasticity of demand is low (i.e. the demand is inelastic), a decrease in the price of the product or service will result in a decrease in total revenue for the seller.
This relationship is based on the fact that when the elasticity of demand is high, a small change in price can lead to a large change in the quantity of the product or service demanded. As a result, a decrease in price can lead to an increase in the total amount of the product or service that is sold, which in turn leads to an increase in revenue.
On the other hand, when the elasticity of demand is low, a small change in price will not lead to a significant change in the quantity of the product or service demanded. As a result, a decrease in price will not lead to a significant increase in the total amount of the product or service that is sold, and revenue will not increase. In fact, revenue may even decrease if the decrease in price is large enough.
What is Own Price Elasticity?
Own-price elasticity is a measure of the elasticity of demand for a product or service with respect to its own price. In other words, it is a measure of how much the quantity of the product or service that consumers are willing to buy changes in response to a change in its own price. Own-price elasticity is typically calculated using the following formula:
Own-price elasticity = (% change in quantity demanded) / (% change in price)
Own-price elasticity is an important concept in economics because it helps to determine how changes in the price of a product or service will affect the revenue of the seller. If the own-price elasticity of demand for a product or service is high (i.e. the demand is elastic), a small change in price will lead to a large change in the quantity of the product or service that is demanded, which can significantly affect revenue. On the other hand, if the own-price elasticity of demand is low (i.e. the demand is inelastic), a small change in price will not have a significant effect on the quantity of the product or service that is demanded, and revenue will not be greatly affected.
