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Demand plays an import role in the decision making in almost every sphere of life especially for the firms, government and the organisations. An understanding of the demand of goods and services is a essential ingredient for the business firms to compete at the market place. This lesson titles "Elasticity of Demand" is intended to equip the learner in understanding elasticity of demand and its importance in business. (please scroll)

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Objective of the Learning Module are:
  • To understand the definition of Law of Demand
  • To understand the difference between law of demand and elasticity of demand
  • To understand different types of Elasticity
  • To understand the degrees of elasticity
  • To understand Methods of measured of elasticity of demand
  • To understand the factor affecting elasticity of Demand
  • To know the uses of elasticity of Demand

Demand is the desire backed by willingness to pay and ability to pay.  Merely,  a wish to have a commodity does not become demand. A person wishing to have a commodity should be willing to pay for it and should have ability to pay for it. Thus a desire becomes demand if it is backed by willingness to pay and ability to pay. Demand is meaningless unless it is stated with reference to a price.

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The Learner is expected to Know the followings before undertaking this module:
  • Definition of Demand
  • Demand curve and Demand Schedule
  • Basic knowledge of 2-D Graphs

The term elasticity was developed by Alfred Marshall, and is used to measure the relationship between price and quantity demanded.

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Law of Demand:

The law of demand states that the price of a commodity falls, the quantity demanded of that commodity will increase. It explains only the direction of change in demand and not the extent of change. This deficiency is removed by the concept of elasticity of demand.

Elasticity means responsiveness. Elasticity of demand refers to the responsiveness of quantity demanded of a commodity to change in its price.The concept of elasticity of demand plays a crucial role in business-decisions regarding fixing of price with a view to make larger.                                                                                                              ............................... More About Elasticity of Demand→

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Key point
There is an inverse relationship between quantity demanded and the price of the good. Accordingly, price elasticity of demand is expressed by negative (-) sign.