**Unit 5: Elasticity of Demand**

**Elasticity of demand tells the degree of responsiveness of consumer to a price change.**

**It is measured as:d e Percentage change in quantity demanded Percentage change in price The arc elasticity is a measure of average elasticity, that is, the elasticity at the midpoint of the chord that connects the two points (A and B) on the demand curve defined by the initial and new price levels.**

**The income elasticity of demand is a numerical measure of the degree to which quantity demanded responds to a change in income, other determinants of demand being keptconstant.**

**The cross elasticity of demand is a numerical measure of the degree to which quantity Notes demanded of a good responds to changes in the prices of other commodities, the other determinants of demand being kept constant.**

**An understanding of elasticity is fundamental in understanding the response of supply and demand in a market.**

**Arc elasticity: It computed if the data is discrete and therefore incremental change is measurable.**

**Cross elasticity: Degree to which demand for one product is affected by the price of another product.**

**Demand elasticity: Elasticity used to show the responsiveness of the quantity demanded of a good or service to a change in its price.**

**Elasticity: It measures the degree of responsiveness of demand/supply to change in price.**

**Point elasticity: It computed if demand function is continuous and therefore only marginal changes are calculable.**

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