Types of Elasticities in Economics and Their Calculation

Economics

Table of Contents
Question 1:.......................................................................................................................................1
(a) Explain in detail three types of elasticities in economics and how it can be calculated........1
(b) Critically evaluate the usefulness of the concept of elasticities.............................................4
Question 4:.......................................................................................................................................6
(a) Explain each of the components of aggregate demand (GDP) giving an example of each...6
(b) Is GDP a good measure of the well-being of a nation? Discuss............................................8
REFERENCES..............................................................................................................................10

Question 1:
(a) Explain in detail three types of elasticities in economics and how it can be calculated
Elasticity can be defined as measurement of percentage in terms of change in one variable,
in terms of changes in other. It refers to central concept within economics, which helps in
analysing the economic variables like income, demand and price (Lee and Seshadri, 2019). In
general, four types of elasticity are present, which helps in measuring the relationship between
significant economic variables. It includes –
Price elasticity of demand (PED) – This factor shows relationship between quantity and
price, by using the formula –
PED = % change in quantity demanded
% change in price
Through this calculated value, effect of changes in price on demanded quantity as well as
on revenue received by companies (Giroud and Rauh, 2019). If PED is measured as less than one
then it shows demand is inelastic, while greater one shows elastic. In addition to this, zero value
shows product is perfectly inelastic and undefined value as perfectly elastic.
Price elasticity of supply (PES) – This elasticity helps in measuring the
responsiveness of quantity which is supplied at marketplace as per change in
price (Bhattacharyya, 2019). By calculating PES, firms get able to quickly and
effectively, respond towards changes in market conditions, particularly for
price changes. It can be calculated by using following formula –
PED = % change in quantity supplied
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