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Types of Elasticity of Demand Video Lecture - UPSC
FAQs on Types of Elasticity of Demand Video Lecture - UPSC
| 1. What is elasticity of demand? |  |
Ans. Elasticity of demand refers to the responsiveness of quantity demanded to a change in price. It measures how sensitive consumers are to price changes and is calculated as the percentage change in quantity demanded divided by the percentage change in price.
| 2. What are the different types of elasticity of demand? | |
Ans. There are five types of elasticity of demand:
1. Price elasticity of demand: Measures the responsiveness of quantity demanded to a change in price.
2. Income elasticity of demand: Measures the responsiveness of quantity demanded to a change in consumer income.
3. Cross elasticity of demand: Measures the responsiveness of quantity demanded of one good to a change in the price of a related good.
4. Elasticity of demand with respect to substitutes: Measures the responsiveness of quantity demanded to a change in the price of substitute goods.
5. Elasticity of demand with respect to complements: Measures the responsiveness of quantity demanded to a change in the price of complementary goods.
| 3. How is price elasticity of demand calculated? | |
Ans. Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. The formula is as follows:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
If the result is greater than 1, demand is elastic; if it is less than 1, demand is inelastic; and if it is equal to 1, demand is unitary elastic.
| 4. Why is elasticity of demand important? | |
Ans. Elasticity of demand is important because it helps businesses and policymakers understand how consumers will react to changes in price or income. It allows them to make informed decisions regarding pricing strategies, production levels, and taxation policies. For businesses, knowing the elasticity of demand helps in maximizing profits, while for policymakers, it aids in designing effective economic policies and forecasting the impact of changes in the economy.
| 5. How does elasticity of demand affect pricing decisions? | |
Ans. Elasticity of demand plays a crucial role in pricing decisions. If demand is elastic (greater than 1), a decrease in price will lead to a proportionately larger increase in quantity demanded, resulting in higher total revenue. In this case, businesses may consider lowering prices to attract more customers and increase market share. On the other hand, if demand is inelastic (less than 1), a decrease in price will lead to a proportionately smaller increase in quantity demanded, resulting in lower total revenue. In this case, businesses may focus on maintaining higher prices to maximize profits.
Text Transcript from Video
now elasticity is of three types price
elasticity income elasticity and cross
elasticity price elasticity is the
degree of responsiveness of demand to a
change in price
how much does demand chain when price
changes by a certain percentage this is
called price elasticity of demand that
is the impact of price on the demand
likewise income elasticity means degree
of responsiveness of demand to a change
in income levels we know that income
levels when the change bring about the
change in demand but how much it is made
known to us by income elasticity of
demand and finally we do cross
elasticity of them cross elasticity of
demand is known from the change in the
price of related goods related goods are
substitutes and complements so how does
change in the price of substitutes and
change in the price of complements bring
about the change in demand and by how
much
so cross elasticity of demand is the
degree of change in demand due to change
in the price of related goods
elasticity income elasticity and cross
elasticity price elasticity is the
degree of responsiveness of demand to a
change in price
how much does demand chain when price
changes by a certain percentage this is
called price elasticity of demand that
is the impact of price on the demand
likewise income elasticity means degree
of responsiveness of demand to a change
in income levels we know that income
levels when the change bring about the
change in demand but how much it is made
known to us by income elasticity of
demand and finally we do cross
elasticity of them cross elasticity of
demand is known from the change in the
price of related goods related goods are
substitutes and complements so how does
change in the price of substitutes and
change in the price of complements bring
about the change in demand and by how
much
so cross elasticity of demand is the
degree of change in demand due to change
in the price of related goods
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