In the left part of the figure the supply of police force has been shown as vertical as the government used to provide service at a fixed price. The volume of service depended on the need within the society but the exact demand was immeasurable. On other hand, with privatization people now have to pay for it and they are less likely wanting to do so. But since police service is amongst one of the important thing to maintain law and order in the system hence more service is going to be provided at higher price. Demand for the service is going to be negligible at higher price. That is the demand for police service is very elastic in nature and the supply of service is strongly inelastic in nature.
The measurement of the fluctuation in demand of any goods due to the change in the price of it is known as Price elasticity of demand. Mathematically it is written as,
The value of price elasticity lies between zero to infinity. If the value lies within the range zero (0) and one (1) then the good is said to be inelastic in nature and if it exceeds one it is said to be elastic in nature. It is said that goods that are necessity is usually inelastic in nature whereas luxury goods are elastic. On other hand, if ample numbers of substitutes are available for any particular good then it have elastic demand and vice-versa.
The concept of elasticity is used to measure the reaction of any goods in respect to the changes in its price and or the price of other goods (Engel, Fischer and Galetovic 2014). It is not necessarily the change in demand but also several times the fluctuation in supply is also considered. Hence, the concept depends on two factors namely the specific good whose responsiveness should be measured and the price against which it is measured. It can either be from demand side or supply side.
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