Distinguish (with graphical illustration) between price elasticity of

Question

Distinguish (with graphical illustration) between price elasticity of Demand and cross elasticity of demand. How can you measure the elasticity of demand? Explain with example how the concept of elasticity of demand is useful for an industry in its decision making process?

06 Mar 2024

Answer :

Word Count : 792

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Aspect	Price Elasticity of Demand	Cross Elasticity of Demand
Definition	The degree of responsiveness of quantity demanded of a good to a change in its own price.	The degree of responsiveness of quantity demanded of a good to a change in the price of another related good.
Formula	Percentage change in quantity demanded / Percentage change in own price	Percentage change in quantity demanded of good X / Percentage change in price of good Y
Interpretation	Measures the sensitivity of demand for a good to changes in its own price.	Measures the degree of substitutability or complementarity between two goods.
Value Range	Negative (for normal goods)	Positive for substitutes, negative for complements.
Perfectly Inelastic	Quantity demanded remains constant regardless of price changes (Ed = 0).	Not applicable.
Perfectly Elastic	Quantity demanded changes infinitely with any price change (Ed = -∞).