Question

explain the concept of elasticity. what are the determinants of elasticity of demand ? why is the concept of elasticity so important in economics ?

200 word - answers with your own words

Answer 1

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Ed= % change in the quantity demand / % change in the price.

Determinants of elasticity of demand are;

Availability of substitutes; The goods which have many substitutes, has elastic demand while the goods which has no substitutes, has inelastic demand.

2.

Types of goods;

The necessary goods have inelastic demand while luxury goods have elastic demand.

3.

Availability of Substitutes: The substitutes are the goods which can be used in place of each another. The goods which have close substitutes, these goods have elastic demand.

On the other hand, if there are no close substitutes for a product, then its demand is said to be inelastic.

4.

Number of uses of a commodity: the goods which have larger the number of uses of a commodity, the elasticity of demand of this will be elastic. On the other hand, if there is a single use of commodities, then this kind of goods have inelastic demand.