Price Elasticity of DemandThis is a measure of the responsiveness of demand to changes in price. Price elasticity of demand may be calculated using the point method as follows:
The calculation would be as follows;
If elasticity is greater than one (as in the above example), there is an ELASTIC demand; if elasticity equals one (or less) then demand is INELASTIC. ELASTIC DEMAND means that when price increases lead to a MORE THAN proportional decrease in the quantity demanded, and vice versa. The degree of elasticity depends on the availability of substitutes. Elastic demand tends to be for products often regarded as luxuries, including DVD equipment, cameras, and cars etc. INELASTIC DEMAND means that when price increases lead to a LESS THAN proportional decrease in the quantity demanded and vice versa. Inelastic demand tends to be for essential products, which cannot be done without, such as bread, milk, beer and cigarettes etc.
Elasticity of SupplyIs measure of the responsiveness of supply to changes in price. Its calculation is similar to elasticity of demand. The shorter the production period for a product, the greater the elasticity of supply, although availability of stocks may alter this.Manufactured products are relatively elastic, as production can be increased in the short period, in contrast to primary products such as wheat. The UMACS Biz Zone Subscribe to our informative monthly newsletter and learn about more great tools and business tips from UMACS Business Solutions. Please complete the form below to subscribe: Back to Intelligent Business Services from Price Elasticity of Demand 
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