# How to calculate coefficient of elasticity of demand

The sensitivity of the market to the change in price for goods, a consumer income and other factors of market conditions is reflected in an indicator of elasticity which is characterized by special coefficient. The coefficient of elasticity of demand shows as far as in quantitative expression demand volume at change of a market factor for 1% changed.

## Instruction

1. You have to consider that there are several indicators of elasticity of demand. The coefficient of elasticity of demand at the price reflects extent of quantitative change of demand at increase or reduction of the price for 1%. At the same time allocate three options of elasticity. Inelastic demand takes place in case the acquired quantity of goods increases smaller rates, than reduction of price. Demand when reduction of price of 1% leads to increase in demand more, than for 1% is considered elastic. If the acquired quantity of goods increases same rates which there is a falling of the price, then demand of single elasticity takes place.

2. In the analysis of elasticity you can calculate coefficient of elasticity of demand on income. It is determined by analogy with elasticity of demand by the price as extent of quantitative change of a consumer income for 1%. Owing to the fact that at increase in income the possibility of purchase of goods increases this coefficient has a positive trend. If the coefficient of elasticity of demand on income is extremely small, then it is about essentials; if on the contrary, it is very big - that about luxury goods.

3. Besides, there is a coefficient of cross elasticity. It characterizes extent of change of demand for one goods at the change in price for other goods for 1%. This indicator can accept both positive, and negative value. If the coefficient of cross elasticity is more than zero, then the considered goods are interchangeable, for example, pasta and potatoes. At increase the potato price demand for pasta increases. If this coefficient accepts negative value, then complementary goods, for example, the car and gasoline take place. At increase in prices for gasoline demand for cars is considerably reduced. If the coefficient of elasticity is equal to zero, then goods are independent from each other, and the change in price for one goods does not influence the volume of demand for another in any way.

Author: «MirrorInfo» Dream Team