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ELASTICITY OF DEMAND
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When the demand for a product changes increases or decreases even when there is no change in price, it is known as perfect elastic x demand.
demand
When the proportionate change in demand is more than the proportionate changes in price, it is known as relatively elastic demand.
D
0 x
demand
D
P R
I
C E
When the proportionate change in demand is less than the proportionate changes in price, it is known as relatively inelastic demand
D
O X demand
P R
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When a change in price, howsover Perfectly inelastic large, change no demand curve changes in quality demand, it is known as perfectly inelastic demand
D demand
P A Income D
B S Quantity Demanded
Total Revenue
B S
Income
O
D Quantity Demanded
y Y
= (5/20) + (500/2500) = 1.5 therefore here the IED is 1.5 which is more than one.
Elasticity Of Substitution
Elasticity of Substitution = Proportionate change in the quantity ratios of goods x & y DIVIDED BY Proportionate change in the price ratios of goods x & y.
i.e.
Py
Price of Y
D O X
Demand for Y
Price of Y
D O Demand for Y X
Demand for Y
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