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Elasticity

 ELASTICITY 

The responsiveness of quantity demanded or quantity supplied to a change in price is the focus of the concept of elasticity.The price elasticity of demand is said to be highly elastic if a small change in price results in a significant change in the quantity demanded.On the other hand, the demand is said to be highly inelastic if a change in price has little or no effect on the quantity demanded.Producers, who must estimate the potential effects of their pricing strategies over time, obviously place a high value on this idea.Additionally, it is crucial for the finance departments of the government, which must model the effects of imposing sales taxes on goods and services in order to forecast tax revenues.

Price elasticity of supply is calculated by dividing the change in quantity supplied by the change in price, and price elasticity of demand is calculated by dividing the change in quantity demanded by the change in price. Price elasticity of supply is calculated in the opposite way.Price inelasticity occurs when an increase in price results in an increase in total revenue, whereas price elasticity of demand occurs when an increase in price results in a reduction in total revenue (p x q) between those two points on the demand curve.When total revenue does not change as a result of a price change, this is known as unitary elasticity.

In addition to price elasticity, your research is relevant to the following related ideas:

The responsiveness of quantity demanded or supplied to a change in income is known as income elasticity.

The responsiveness of the quantity demanded or supplied of good X to a change in the price of good Y is called cross elasticity. 

EQUILIBRIUM

A business will produce where the supply and demand curves meet, as long as price and all other determinants of supply and demand remain constant.This is, by definition, the point at which the quantity offered and the quantity demanded are equal (see Figure 3). 





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