What Is The Concept Of Elasticity Of Demand?

The concept of elasticity of demand is very important in economic theory and policy. It is used to measure the effect of changes in price on quantity demanded. It is known that according to the law of demand, if price decreases the demand increases and if price increases the demand falls. The quality of demand to change with changes in price is called the elasticity of demand.

By definition, then, the elasticity of demand is the rate at which the quantity demanded changes in response to a change in price.
Its formula is:
Ed = percentage change in quantity demanded/percentage change in price.

This rate of change in demand varies according to commodities, market and consumers. At times a small change in prices has a big effect of demand. This phenomenon is called elastic demand. This effect is usually seen when consumers have more buying options. There are also situations when a large change in price has a small effect of demand. This is called inelastic demand. Commodities like basic food items like salt tend to show inelastic demand.

A perfect elastic demand exists when demand increase with no change in price. This is called infinite elasticity. A situation of zero elasticity result when lowering the price does not increase the demand.

Concept of demand elasticity and it's relevant for application in nigeria business

Discuss the importance of various demand elasticity concepts to business and the government

Summarize the classification of elasticity of demand and supply?

Differentiate between elastic and inelastic demond

1) income, (2) tastes and preferences, (3) the price of related goods, (4) changes in expectations of future relative prices, and (5) population (I.e., market size). The major non-price determinants of supply are: (1) input costs, (2) technology, (3) taxes and subsidies, (4) expectations of future relative prices, and (5) the number of firms in the industry.

Price elasticity of demand