Instruction

1

In the economy under

**the elasticity**of Yu imply the extent of reaction parameter on the change in the other. Consequently,**the elasticity of**u**demand**on*price*called the reaction**of demand**caused by the change. In other words, the price**elasticity****of demand**shows how much has changed the amount**of demand**in percentage for a particular product when its price changes by 1%.2

Demand is elastic if the change in the price of goods or services 1% the magnitude

**of demand**changes by more than 1%. Accordingly, if less than 1%, the demand is not elastic.3

As with any rule, there are some special cases. Demand may have unit

**elasticity**. In this case, if the price increases by 1% demand falls by 1%. Therefore, we can conclude that when the unit elasticity, the price change for any product or service will be accompanied by a proportional change**in the demand**for this product or service.4

There is also perfectly elastic and perfectly inelastic demand. The first case describes that whenever the established

*price*on a specific range**of the demand**consumers are willing to purchase any amount of goods. Accordingly perfectly inelastic demand shows that the volume**of demand**for the products at any*price*remains unchanged.5

In special group allocate cross -

**elasticity****of demand**. It shows how to change the value**of the demand**for this product or service with the price change of another product or service.6

To find

**the elasticity****of demand**, you should calculate the percentage change in the value**of demand**and relate it to the percentage price change. E=(Q2-Q1)/(P2-P1)*P/Q (E – coefficient of price elasticity**of demand**, Q2-Q1 is the increase in the magnitude**of demand**P2-P1 is the price increment, P – price, Q – quantity of production. This formula shows that the coefficient of elasticity depends not only on the ratio of the increments of the prices and amount of products, but of actual prices and volume.7

Coefficient of cross elasticity is different. E=(Q2-Q1)/Q*P/(P2-P1). This ratio can be greater than, less than or equal to zero. If more, then we are dealing with interchangeable products (substitutes), if less than complementary goods (complements), if equal - commodities among themselves neutral.