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  Percentage method

Percentage method:

This is measured as the associative change in demand divided by associative change in price (or) percentage change in demand divided by the percentage change in price. Formula is,

ep =  %Δq/% Δp

For illustration, the price of rice increases by 10 percent and the demand for rice falls by 15 percent,

Then, ep = 15/10 = 1.5

This means that the demand for rice is flexible.

When the demand falls to 5 percent for a 10 percent rise in price, then ep = 5/10 = 0.5. This means that the demand for rice is not flexible. Therefore there are five measures of elasticity.

a) Elastic demand, when the value of elasticity is more than 1

b) Inelastic demand, when the value of elasticity is below than 1

c) Unitary elastic demand, when the value of elasticity is equivalent to 1.

d) Perfectly inelastic demand, when the value of elasticity becomes zero.

e) Perfectly elastic demand, when the value of elasticity becomes infinity.

 

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