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Types of Elasticity of Demand

The three main types of elasticity of demand are discussed in brief.

1.Price elasticity of demand:

Definition and explanation:

The concept of price elasticity of demand is commonly used in economic literature. Price elasticity of demand is the degree of responsiveness of quantity demanded of a good to a change in its price. Precisely it is defined as:

“The ratio of proportionate change in the quantity demanded of a good caused by a given proportionate change in price”.

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Formula:

The formula for measuring price elasticity of demand is:

Price elasticity of Demand=

Ed =

Ed =

Example:

Let us suppose that price of a good falls from Tk. 10 per unit to Tk. 9 per unit in a day. The decline in price causes the quantity of the good demanded to increase from 125 units to 150 units per day. The price elasticity using the simplified formula will be:

Ed=

Q= 125-150=-25

P= 10-9=1

Original quantity = 125

Original price = 10

Ed = -25/1*10/125 = -2

The elasticity coefficient is greater than one. Therefore, the demand for the good is elastic.