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ECONOMICS
QUESTION: 01 Elasticity of demand? How it is measured.
Definition of Elasticity of Demand:
“An elastic demand is one in which the change in quantity demanded due to a change in
price is large.”
Elasticity of demand is an important variation on the concept of demand. Demand can be
classified as elastic, inelastic or unitary.
An elastic demand is one in which the change in quantity demanded due to a change in price
is large. An inelastic demand is one in which the change in quantity demanded due to a change
in price is small.
The formula for computing elasticity of demand is:
(Q1 Q2) / (Q1 + Q2)
(P1 P2) / (P1 + P2)
How to measured elasticity of Demand:
The following points highlight the top five methods used for measuring the elasticity of demand.
The methods are:
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand
4. Advertisement or Promotional Elasticity of Sales
5. Elasticity of Price Expectations.
METHOD 1: Prize Elasticity of Demand
“Price elasticity of demand is a measure of the change in the quantity purchased of a product in
relation to a change in its price.”
Formula:
The price elasticity of demand is calculated as the percentage change in quantity divided by
the percentage change in price.

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METHOD 2: Income Elasticity of Demand
Income elasticity of demand is an economic measure of how responsive the quantity demand
for a good or service is to a change in income.
Formula:
The formula for calculating income elasticity of demand is the percent change in quantity
demanded divided by the percent change in income.
METHOD 3: Cross Elasticity of Demand
Cross elasticity of demand evaluates the relationship between two products when the price in
one of them changes.

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ECONOMICS QUESTION: 01 Elasticity of demand? How it is measured. Definition of Elasticity of Demand: “An elastic demand is one in which the change in quantity demanded due to a change in price is large.” Elasticity of demand is an important variation on the concept of demand. Demand can be classified as elastic, inelastic or unitary. An elastic demand is one in which the change in quantity demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due to a change in price is small. The formula for computing elasticity of demand is: (Q1 – Q2) / (Q1 + Q2) (P1 – P2) / (P1 + P2) How to measured elasticity of Demand: The following points highlight the top five methods used for measuring the elasticity of demand. The methods are: 1. Price Elasticity of Demand 2. Income Elasticity of Demand 3. Cross Elasticity of Demand 4. Advertisement or Promotional Elasticity of Sales 5. Elasticity of Price Expectations. METHOD 1: Prize Elasticity of Demand “Price elasticity of demand is a measure of the change in the quantity purchased of a product in relation to a change in its price.” Formula: The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price. METHOD 2: Income Elasticity of Demand “Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income.” Formula: The formula for calculat ...
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