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Module 1: The competitive market system

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XSIQ
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Economics - The Competitive Market System - Elasticity

Elasticity

While the laws of demand and supply state that the quantity demanded and
supplied will change with a price change, it is very important to know by
how much the quantity demanded and supplied changes. Elasticity refers to
responsiveness. A strong response (more than proportional response) to a
price change is known as elastic demand or supply.

A weak response (less than proportional response) to a price change is
known as inelastic demand or supply.

A coefficient (number) of elasticity can be calculated.

A coefficient of more than one - ELASTIC

A coefficient of less that one - INELASTIC

Example:

If the quantity demanded of a good increased by 600 from 1000 as a result
of its price falling from $20 to $12, what is the coefficient of
elasticity?

The product has elastic demand.

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