Question

How does one determine whether demand/supply is elastic, inelastic, or unit elastic?

Answer 1

Ans) Elasticity of demand/supply is the responsiveness of quantity demanded/supplied to change in price.

Elasticity of demand carries a negative sign, which shows inverse relationship between price and quantity demanded. While elasticity of supply is positive, which shows direct relationship between price and quantity supplied.

Elasticity = (%change in quantity demanded/supplied) ÷ %change in price

If %change in quantity demanded/supplied is more than the %change in price then demand/supply is said to be Elastic in nature. And value of elasticity is more than 1.

If %change in quantity demanded/supplied is less than the %change in price then demand/supply is said to be Inelastic. In this case value of elasticity is less than 1.

If %change in quantity demanded/supplied is equal to the %change in price then the elasticity of demand/supply is said to be unit elastic. In this case value of elasticity is 1.