Microeconomic Concepts

Running Head: Microeconomic Concepts
Microeconomics

Microeconomic Concepts 1
Question 1
The Price Elasticity of Demand:
The price elasticity of demand can be defined as the measure of degree of responsiveness of
the change in quantity demanded of a particular good to the change in its price. In other
words, it can be explained as the ratio of percentage change in the quantity demanded to
percentage change in its price (Ruttan & Thirtle, 2014).
Figure 1: Price elasticity of demand
The Price Elasticity of Supply:
The price elasticity of demand can be defined as the measure of degree of responsiveness of
the change in quantity supplied of a particular good to the change in its price. In other words,
it can be explained as the ratio of percentage change in the quantity supplied to percentage
change in its price (Colchero, et. al., 2015)

Microeconomic Concepts 2
Figure 2: Price elasticity of Supply
There are various types of price elasticity of demand, for example: perfectly elastic demand,
perfectly inelastic demand, elastic demand, inelastic demand and lastly the unit elastic
demand.
The difference between elastic and inelastic demand is as follows:
Basis Elastic demand Inelastic Demand
Definition It occurs when a minor
change in price of the
commodity leads to bigger
change in the quantity
demanded of the same
commodity (Economic
Discussion, 2017).
It occurs when there is no
significant impact of change
in commodity’s price, on the
quantity demanded of the
same commodity.
Calculation It can be calculated using the
formula where % age change
in quantity demanded of the
If the result of the said
formula is less than 1, the
demand is to be termed as