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ELASTICITY OF DEMAND

Meaning of elasticity of demand measures the degree of responsiveness of quantity of commodity bought to changes in the prices of a commodity. It can also be defined as the responsiveness of one variable to changes in another variable. There are different types of elasticity of demand which are price, income and cross elasticity. Price elasticity of demand can be defined as the degree of responsiveness of the quantity demand of a commodity to a change in its price Income elasticity of demand is the responsiveness of the quantity demanded of one commodity to change in consumers income Cross elasticity of demand is the responsiveness of the quantity of one commodity to a change in the price of another commodity MEASURESMENT OF ELASICITY OF DEMAND Elasticity of demand can be can be determined by calculating the elasticity of demand co-efficient. PRICE ELASCITY OF DEMAND: It is the proportionate change in the demanded divided the prop ornate change in price. FORMULAE ED=

EXAMPLE: If the price of a commodity increases from N15 to N20 and the quantity bought increases from 150kg to 200kg, determine the price elasticity of demand. Step 1: change in quantity bought N200-NI50= N50 Step 2: in quantity bought=50 150 1 100= 33

Step 3: change in price= 20-15 = N5.00 Step 4: change in price=5 15 100= 33 1

ELASTICITY= 33 =1

INCOME ELASTICITY OF DEMAND: Income elasticity of demand of demand; it is the proportionate change in the quantity demanded divided by the proportionate change in income. FORMULAE ED= %C CHANGE IN QUATITY DEMANDED %CHANGE IN INCOME EXAMPLE 2; A in consumers income from N250 to N400 brings about an increase in the quatity demanded of a commodity from 1000kg to 3000kg, than the income elasiticity of demanded Step 1; change in income N400-N250 =N150 Step 2. % in income = STEP 3. Change in quatity bought =3000kg 1000kg =2000kg Step 4. Change in quatity = Step 5. Ey = CROSS ELASTICITY OF DEMAND: It is use to measure the prpportionate the change in quatity demanded (say X) divided by the proportionate change in the price of another commodity ( say y) Fornulea Co-effiencient of cost elasticity of demand (Exy) = Example 3;

An increase in the price of Y from N100 to N 150 result in an increase in the quatity demanded of X form 250kg to 400kg, then cost elasticity of demand. Step 1: change in the price of Y = 150 100 = N50 Step 2: % change in price = Step 3. change in quantity of X = 400 250 = 150 Step 4: % change in quatity of X = Step 5: Exy = The co-effiecient is more than one therefore, it is elastic demand.