Economics Elasticity Of Demand Questions Long
The relationship between elasticity of demand and market elasticity is closely intertwined as they both measure the responsiveness of quantity demanded to changes in price. However, they differ in terms of the scope of analysis.
Elasticity of demand refers to the degree of responsiveness of quantity demanded to changes in price. It measures the percentage change in quantity demanded divided by the percentage change in price. Elasticity of demand can be classified into three categories: elastic, inelastic, and unitary elastic.
- Elastic demand: When the percentage change in quantity demanded is greater than the percentage change in price, demand is considered elastic. In this case, consumers are highly responsive to price changes, and a small change in price leads to a relatively larger change in quantity demanded. The elasticity of demand is greater than 1.
- Inelastic demand: When the percentage change in quantity demanded is less than the percentage change in price, demand is considered inelastic. In this case, consumers are less responsive to price changes, and a large change in price leads to a relatively smaller change in quantity demanded. The elasticity of demand is less than 1.
- Unitary elastic demand: When the percentage change in quantity demanded is equal to the percentage change in price, demand is considered unitary elastic. In this case, consumers' responsiveness to price changes is proportional, and a change in price leads to an equal percentage change in quantity demanded. The elasticity of demand is equal to 1.
On the other hand, market elasticity refers to the overall responsiveness of quantity demanded to changes in price in a particular market. It takes into account the elasticity of demand for all consumers in the market. Market elasticity can be classified into four categories: perfectly elastic, perfectly inelastic, relatively elastic, and relatively inelastic.
- Perfectly elastic market: When a small change in price leads to an infinite change in quantity demanded, the market is considered perfectly elastic. This occurs when demand is perfectly elastic for all consumers in the market, meaning they are extremely responsive to price changes.
- Perfectly inelastic market: When a change in price has no effect on the quantity demanded, the market is considered perfectly inelastic. This occurs when demand is perfectly inelastic for all consumers in the market, meaning they are not responsive to price changes.
- Relatively elastic market: When the percentage change in quantity demanded is greater than the percentage change in price, the market is considered relatively elastic. This occurs when demand is elastic for a significant portion of consumers in the market.
- Relatively inelastic market: When the percentage change in quantity demanded is less than the percentage change in price, the market is considered relatively inelastic. This occurs when demand is inelastic for a significant portion of consumers in the market.
In summary, elasticity of demand focuses on the responsiveness of quantity demanded for an individual consumer, while market elasticity considers the overall responsiveness of quantity demanded in a particular market. Both concepts are important in understanding consumer behavior and market dynamics, as they provide insights into how changes in price affect the quantity demanded and ultimately impact market equilibrium.