ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Percentage change in QD / Percentage change in Income
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Percentage change in quantity / Percentage change in price
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New-Old / Old X 100
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Percentage change in quantity of good A / Percentage change in price of good B
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Detailed explanation-1: -The formula for calculating income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.
Detailed explanation-2: -Percentage change in Qd = (Q1-Q2) / [1/2 (Q1+Q2)] where Q1 = initial Qd, and Q2 = new Qd. Percentage change in P = (P1-P2) / [1/2 (P1 + P2)] where P1 = initial Price, and P2 = New Price.
Detailed explanation-3: -On the other hand, the formula for calculating YED is as follows: YED = percentage change in quantity demanded/percentage change in income.
Detailed explanation-4: -The income elasticity of demand is given by the formula: If the percentage change in the quantity demanded is greater than the percentage change in income, then demand is said to be income elastic, or very responsive to changes in demanders’ incomes.
Detailed explanation-5: -The price elasticity of demand (which is often shortened to demand elasticity) is defined to be the percentage change in quantity demanded, q, divided by the percentage change in price, p. The formula for the demand elasticity (ǫ) is: ǫ = p q dq dp .