Elasticity is the measure of a variable's response to a change. It can be in percentage or it can be in numeric terms. Elasticity can be perfectly elastic, perfectly inelastic, relatively elastic, relatively inelastic or unitary elastic.
Determinants of elasticity is from both views:- SUPPLY and DEMAND.
From the view point of demand, two determinants are:-
1. Price of own goods- this determinant of elasticity of demand states that change in price which is a result from the change in quantity demanded of a commodity.
Ped= (dQ/dP)*(P/Q)
2.Price of Substitutes/Complementary goods- there exist a cross price elasticity of demand for such goods. If Cped is negative then such goods are called complementary, if positive then these are substitute goods.
From the view point of supply, two determinants are:-
1.Flexibility of inputs- an input should be flexible so as to be useful in production of other goods.
2.Time- time is also an important determinant of the elasticity of supply. If time period is for few years than supply curve is more price elastic.
Determinants of elasticity is from both views:- SUPPLY and DEMAND.
From the view point of demand, two determinants are:-
1. Price of own goods- this determinant of elasticity of demand states that change in price which is a result from the change in quantity demanded of a commodity.
Ped= (dQ/dP)*(P/Q)
2.Price of Substitutes/Complementary goods- there exist a cross price elasticity of demand for such goods. If Cped is negative then such goods are called complementary, if positive then these are substitute goods.
From the view point of supply, two determinants are:-
1.Flexibility of inputs- an input should be flexible so as to be useful in production of other goods.
2.Time- time is also an important determinant of the elasticity of supply. If time period is for few years than supply curve is more price elastic.
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