Sunday, May 10, 2015

If price elasticity of demand is zero, what does it mean?

If Q1 and Q2 are quantity of the demand of commodities at 
prices P1 and P2, then the elasticity is the ratio
{(Q2-Q1)/(Q1+Q2)}/{(P2-P1)/(P1+P2)}.


Therefore eastity =
(Q2-Q1)(P2-P1)/((Q1+Q2)(P2+P1))


So the elasticity  is zero
, when Q1 = Q2 for any  change in price .


That means  when
the demand is unaffected by any change in price of the commodity, the elasticity zero.
Under the zero elasticity condition , neither the supply of commodities  nor the demand
for the commodities show any variation  dispite change in
price.


Elasticity is a pure unitless number as it is the
ratio of two absolute ratios. The numerator is the ratio of commodities and so it is 
unitless.The denominator is also a ratio of prices and so
unitless.


The elasticity is  made use of in market
analysis.

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