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Unic feature of Cryptocurrency || Demand Elasticity of BTC || How it reacts & Why??

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Price Elasticity of Demand


Elasticity roughly means responsiveness. Elasticity of demand measures the degree of responsiveness of demand to a change in price of the commodity.

It is defined as:

The ratio of the percentage change in quantity demanded to the percentage change in price.
Price elasticity of demand is expressed as under formula:

What response demand of a commodity shows when there is either increase or decrease in its price, is explained with the help of elasticity. Exchangers have great advantages by knowing elasticity of the products he is selling.

Greater response means greater elasticity and small response indicates less elasticity. An exchangers is very interested in knowing whether sales will increase by 4 percent, 10 percent or more by cutting down price by 8 percent.

Prof. Alfred Marshall had introduced the concept of elasticity of demand in the economic theory. In his words:

The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price and diminishes much or little for a given rise in price.


Measurement of Price Elasticity of Demand


Price elasticity of demand can be measured with the help of percentage method or proportionate method. According to this method, percentage change in price is compared with the percentage change in demand.
Elasticity is the ratio of the percentage change in quantity demanded to the percentage change in price as expressed below:


Categories of Price Elasticity of Demand


  • Perfectly Inelastic Demand
  • Inelastic or less than Unit Elastic Demand
  • Unitary Elastic Demand
  • More than Unit Elastic
  • Perfectly Elastic Demand
  • Negative Elastic Demand

1. Perfectly Inelastic Demand


Demand for a commodity will be said to be perfectly inelastic, if the quantity demanded does not change at all in response to a given change in price.
If 10 percent change in price results in zero percent change in demand, it is exactly inelastic demand. The demand curve, in this case, is vertical straight line perpendicular to Y-axis.


2. Inelastic or less than Unit Elastic Demand


Demand for commodity will be said to be inelastic (or less than unit elastic) if the percentage change in quantity demanded is less than the percentage change in price.
If 10 percent change in price results in 6 percent change in demand, it is inelastic demand.


3. Unitary Elastic Demand


Demand for a commodity will be said to be unit elastic if the percentage change in quantity demanded equals the percentage change in price.
If 10 percent change in price results in 10 percent change in demand, it is unit elastic demand. The demand curve in such case is called rectangular hyperbola.


4. More than Unit Elastic


Demand for a commodity will be said to be more than unit elastic if a change in price results in a significant change in demand for this commodity.
If 10 percent change in price results in 14 percent change in demand, it is elastic demand.


5. Perfectly Elastic Demand


Demand for a commodity is said to be perfectly elastic, when a small change in its price results in an infinite change in its quantity demanded.
If 10 percent change in price results in (α) percent change in demand, it is exactly elastic demand. In this case, demand curve is horizontal straight line parallel to X-axis.


6. Negative Elastic Demand


Demand for a commodity is said to be negatively elastic, when a small change in its price results in a change in its quantity demanded but in opposite manner.

In cases of regular Elastic Demand goods, the quantity demanded is changed with the change of price but in an inversely proportional way. In case of some rare goods, the quantity demanded is changed proportionally with the change of price.


Demand Elasticity of Cryptocurrencies


(The graph is showing the trend line of last year data for BTC)

Though Negative Elastic Demand is rare, but happened spontaneously in case of cryptocurrencies. If we observe the last year data of Bitcoin, we will find it as a Negative Elastic Demand. The quantity demanded of BTC is increasing a little bit with the increase of price.


Why??


This is the real beauty of cryptocurrencies as they react differently than others. Because the market drive is also decentralized and you may not manipulate it.

In case of other products & currencies, the price is determined by the market force. But is it rational. here is the question? the consumers/customers have to be deprived by the supply force that is controlled only by some industrialists and market player.

But in case of cryptocurrencies, situation is far better. Here the market force is also decentralized and spply & demand may run parallel as we have shown for BTC.

It is the main strength of decentralized system and cryptocurrencies


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