Introduction to Markets and Market Failure- Elasticises of Demand L123

Elasticities of dema
LO1 : DEFINE EL ASTICITY
L02 : CALCUL ATE EL ASTICITY
L03 : EXPL AIN PRICE, INCOME AN
CROSS-PRICE EL ASTICITIES OF DE

,
,Elasticity
Both the demand for and the supply of The sensitivity of demand to a
a good or service can be expected to change in one of its determining
depend on its price as well as other factors can be measured by its
factors. elasticity.
It is useful and interesting to know just
how sensitive demand and/or supply
will be to a change in either price or
one of the other determinants – for
example, in predicting how market
equilibrium will change in response to
a change in the market environment.



Theme 1: Introduction to Markets and Market Failure – Elasticities of
Demand L123

, Price elasticity of demand (PED)
Price elasticity of demand is the
most common elasticity measure. It
measures the sensitivity of the
quantity demanded of a good or
service to a change in its price.



Remembering this basic formula for
working out the percentage change:




Theme 1: Introduction to Markets and Market Failure – Elasticities of
Demand L123