CONCEPTS OF ELASTICITY OF DEMAND AND ECONOMIC SURPLUS

The  Elasticity of Demand:

                 Elasticity is defined as the change in the Quantity based on the product's price and consumer's income.

  

           Eg: A person wants to buy a mobile online. He checks the price of mobile in various websites and finally, he buys the mobile from the website which has a lower price compared to others.

Determinants of Elasticity of Demand:

• The income of a customer, whether he can afford the cost of the product.
• Price of the product.
• Brand - which has an impact on a lot of customers.
• Time and Durability.
• Multiple uses of a commodity.
• The existence of Substitutes - Goods which can be used in place of another.

Price Elasticity of Demand properties:

• If PED is less than 1, it is inelastic. If a good is inelastic reduce the price to increase revenues.
• If PED is greater than 1, it is elastic.  If a good is elastic increase price to increase revenues.
• If the price is held constant and has no effect on revenues then it is unitary elastic.

Economic Surplus:

        It is the sum of both consumer surplus and Producer Surplus.

Consumer Surplus:

         It is the difference between the price you are willing to pay and the actual price you paid.

Producer Surplus:

        It is the difference between the price the producer is willing to sell and actual sales he received.