Elasticity Key Term

Elasticity Price elasticity of demand Price elastic demand
(PED)
Price inelastic demand Unitary inelastic demand Perfectly price elastic demand
Perfectly price inelastic Determinants of price elastic Cross elasticity of demand
demand demand (XED)
Income elasticity of demand Income elastic demand Income inelastic demand
(YED)
Firm’s Revenue Elasticity Government revenue
Key Terms
Primary sector / primary Manufacturing sector Tertiary sector or service

commodities sector
Price elasticity of supply (PES) Price elastic supply Price inelastic supply
Unitary elastic supply Perfectly price elastic supply Perfectly price inelastic supply
Determinants of price elastic Immediate time period Short run
supply
27-09-2018 www.sachinsachdeva.com
Long run
Elasticity
Elasticity refers to responsiveness of one variable to proportionate

change in another variable.
Price elasticity of demand (PED)
Price elasticity of demand is a measure of responsiveness of quantity

demanded of a product to proportionate change in the price of that
product.
Price elastic demand
Demand is said to be price elastic if proportionate change in quantity

demanded of a product is greater than proportionate change in price
of that product. Here PED > 1. When the product experiences price
elastic demand then its demand curve is relatively flatter.
Price inelastic demand
Demand is said to be price inelastic if proportionate change in quantity

demanded of a product is smaller than proportionate change in price
of a that product. Here PED < 1. When the product experiences price
inelastic demand its demand curve is relatively steeper.
Unitary inelastic demand
Demand is said to be unitary elastic if proportionate change in

quantity demanded of a product is equal proportionate change in
price of a that product. Here PED = 1. When the product experiences
unitary elastic demand then its demand curve is like rectangular
hyperbola or arch.
Perfectly price elastic demand
When quantity demanded of a product changes without any change in

the price of that product, then the demand of that product is said to
be perfectly price elastic. Here PED = ∞ or n.d.. When the product
experiences perfectly price elastic demand then its demand curve is
parallel to horizontal axis.
Perfectly price inelastic demand
When quantity demanded of a product does not change at all in

response to any change in the price of that product, then the demand
of that product is said to be perfectly price inelastic. Here PED = 0.
When the product experiences perfectly price inelastic demand then
its demand curve is parallel to vertical axis.
Determinants of price elastic demand
Factors affecting price elasticity of demand of a product are referred as

determinants of PED. For example if the product in question
represents necessity then demand of that product will be price
inelastic whereas if it represents luxury then demand of that product
will be price elastic.
Cross elasticity of demand (XED)
Cross elasticity of demand measures the responsiveness of quantity

demanded of a product to proportionate change in the price of
another product. If the 2 goods in question are substitute, then their
XED will be positive where as if they are complementary then their
XED will be negative. XED of unrelated goods is equal to zero.
Income elasticity of demand (YED)
Income elasticity of demand measures the responsive of quantity

demand of a product to proportionate change in the income of its
consumers. YED for normal goods is positive while YED for inferior
goods is negative.
Income elastic demand
When the proportionate change in quantity demand of a product is

greater than proportionate change in the income of consumer of that
product , then the demand of that product is said to be income elastic.
Income inelastic demand
When the proportionate change in quantity demand of a product is

smaller than proportionate change in the income of consumer of that
product , then the demand of that product is said to be income
inelastic.
Firm’s Revenue
Firms’ revenue refers to the amount of sales proceeds of the firm. It is

calculated by multiplying the number of units of the product sold with
the price per unit of the product. (TR = P X Q)
Government revenue
Government revenue refers to the amount received by the

government to meet its expenditure from various sources which
includes: direct and indirect tax collections, fines and penalties, profit
from public sector undertakings, sales proceeds from the transfer of
ownership national assets &/or public sector undertakings, interest on
loans, entry fee from visitors national monuments etc.
Primary sector / primary commodities
Everything that is extracted from the land is considered as primary

goods or primary commodities or commodities. It includes
agricultural, fishing, oil, coal, mineral, forestry etc. Firms operating in
primary sector are involved with the extraction, harvesting &
conversion of natural resources.
Manufacturing sector
It’s also referred as secondary sector. Manufactured goods are man-

made goods. They are produced by transforming primary goods into
finished goods. They include: electronics, automobiles, books and
stationery, processed food, clothing, buildings etc. Firms operating in
the secondary sector are involved in the manufacturing or
construction of products.
Tertiary sector or service sector
Service sector includes non-tangible economic goods like banking,

insurance, transportation, education, hospitability, healthcare
entertainment etc whose consumption indicates improvement in
standard of living of the consumer. Firms operating in the tertiary
sector specialise in providing services to their customers.
Price elasticity of supply (PES)
Price elasticity of supply is a measure of responsiveness of quantity

supplied of a product to proportionate change in the price of that
product.
Price elastic supply
Supply is said to be price elastic if proportionate change in quantity

supplied of a product is greater than proportionate change in price of
that product. Here PES > 1. When the product experiences price elastic
supply then its supply curve starts from y-axis.
Price inelastic supply
Supply is said to be price inelastic if proportionate change in quantity

supplied of a product is smaller than proportionate change in price of
a that product. Here PES < 1. When the product experiences price
inelastic demand its supply curve starts form x-axis.
Unitary elastic supply
Supply is said to be unitary elastic if proportionate change in quantity

supplied of a product is equal proportionate change in price of a that
product. Here PES = 1. When the product experiences unitary elastic
supply its supply curve pass through from origin.
Perfectly price elastic supply
When quantity supplied of a product changes without any change in

the price of that product, then the supply of that product is said to be
perfectly price elastic. Here PES = ∞ or n.d.. When the product
experiences perfectly price elastic supply then its supply curve is
parallel to horizontal axis.
Perfectly price inelastic supply
When quantity supplied of a product does not change at all in

response to any change in the price of that product, then the supply of
that product is said to be perfectly price inelastic. Here PES = 0. When
the product experiences perfectly price inelastic supply then its supply
curve is parallel to vertical axis.
Determinants of price elastic supply
Factors affecting price elasticity of supply of a product are referred as

determinants of PES. For example “Time Period”, supply of a product is
perfectly price inelastic in immediate time period, while in short-run
supply is price inelastic and in long-run supply is price elastic.
Immediate time period
During immediate time period all the factors of production are fixed or
constant.
Short run
Short-run is time period in which all the factors of production are

variable but one.
Long run
Long-run is a time period in which all the factors of production are

variable.

Elasticity Key Term

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Elasticity Key Term

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Elasticity Price elasticity of demand Price elastic demand

Primary sector / primary Manufacturing sector Tertiary sector or service

Elasticity refers to responsiveness of one variable to proportionate

Price elasticity of demand is a measure of responsiveness of quantity

Demand is said to be price elastic if proportionate change in quantity

Demand is said to be price inelastic if proportionate change in quantity

Demand is said to be unitary elastic if proportionate change in

When quantity demanded of a product changes without any change in

When quantity demanded of a product does not change at all in

Factors affecting price elasticity of demand of a product are referred as

Cross elasticity of demand measures the responsiveness of quantity

Income elasticity of demand measures the responsive of quantity

When the proportionate change in quantity demand of a product is

When the proportionate change in quantity demand of a product is

Firms’ revenue refers to the amount of sales proceeds of the firm. It is

Government revenue refers to the amount received by the

Everything that is extracted from the land is considered as primary

It’s also referred as secondary sector. Manufactured goods are man-

Service sector includes non-tangible economic goods like banking,

Price elasticity of supply is a measure of responsiveness of quantity

Supply is said to be price elastic if proportionate change in quantity

Supply is said to be price inelastic if proportionate change in quantity

Supply is said to be unitary elastic if proportionate change in quantity

When quantity supplied of a product changes without any change in

When quantity supplied of a product does not change at all in

Factors affecting price elasticity of supply of a product are referred as

Short-run is time period in which all the factors of production are

Long-run is a time period in which all the factors of production are

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