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ELASTICITY (Elasticity of Supply (Determination of Es (Availability of…
ELASTICITY
Elasticity of Supply
Determination of Es
Availability of Substitute
Spare capacity
Change in Production Cost
Ease of Storing Stock
Time to respond
Gestation period
Es =
Es> 1 = Elastic Supply
Es<1 = Inelastic Supply
Es = 0 =Perfectly Inelastic
Es = = Perfectly Elastic
Elasticity of Demand
Income Elasticity
.
.
Cross Elasticity
Price Elasticity
Ep = Q1-Q0 x P0
Based on Law of Demand = (-) mean DECREASE.
1% INCREASE in price lead to 2.5% (-) DECREASE in Qd.
Factors affect price elasticity of demand
Necessities vs Luxury
Availability of Substitute
Time to React
Type of Elasticity of Demand
Ep< 1 : Inelastic
Ep= 0 : Perfectly Inelastic
Ep=1 : Unelastic
Ep = : Perfectly elastic
Ep>1 : Elastic
DEFINITION
Response of demand and supply when change in factors (good's own price,income)
Types of elasticity
Elasticity of Demand
Elasticity of Supply