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Saturday, 13 August 2011

Word of the Day

Elasticity

Elasticity measures the responsiveness of one variable following a change in another variable. For example, we’d like to know demand for a good will change after a firm has increased the price of it. This is measured using the concept of elasticity.

1. Price elasticity of demand

PED measures the responsiveness of consumers following a change in the price of a good. It is the proportionate change in demand after the price has changed.

2. Price elasticity of supply

PES is the proportionate change in supply of a good following a change in the price of it.

3. Income elasticity of demand

Measures the change in quantity demanded of a good following a change in consumers’ income.

4. Cross elasticity of demand

Measures the proportionate change in demand for good A following a change in the price of good B.