Elasticity of Demand

Topic Covered in this page

Elasticity of Demand : –

There are various factors, which can result in change in demand of a commodity. Some of these factors, may result in a high change in demand, while others may result in a low change in demand. Elasticity of Demand refers to the percentage change in demand for a given commodity , when there is  a particular  percentage change in any of the factors affecting demand for that commodity.

Elasticity of demand =           Percentage change in demand for a given commodity

Percentage change in any of the factors affecting demand for that commodity

Types of Elasticity of demand : –

  1.  Price Elasticity of demand :-  Price Elasticity of demand refers to the percentage change in demand for a commodity, with respect to percentage change in the price of the given commodity.
  2. Cross Elasticity of demand : – Cross elasticity of demand refers to the percentage change in demand for a commodity ,with respect to percentage change in the price of a  substitute good or complementary good.
  3. Income Elasticity of demand:- Income elasticity of demand refers to the percentage change in demand for a commodity, with respect to percentage change in the income of the consumer.

Price elasticity of demand:-

Price Elasticity of Demand , means the degree of responsiveness of demand for a commodity , with reference to change in the price of such commodity.

Features of Price Elasticity   : –

  • Price Elasticity of Demand establishes a quantitative relationship, between quantity demanded of a commodity and its price, while other factors remain constant. This means, what will be the quantitative change in the demand of a given commodity, if the price of the commodity changes  . It is assumed that all other factors which can impact demand remain constant.

 

  •  A Higher  numerical value of Price Elasticity of Demand implies that, change in  price  of the commodity significantly impacts   the quantity demanded  for such commodity.

 

  • Change in price different goods may lead to a different  change in the demand of such goods. In some cases ,  there maybe a small change in demand due to change in price, Where is another cases there maybe a  large  change in demand due to change in price. For example, if prices of Petrol and Apple rise by 2% and their demands falls by 20% and 5% respectively, then commodity ‘Petrol’ is said to be more elastic as compared to commodity ‘Apple’.

 

  • Given that price is the most important factor which determines  demand, price elasticity of demand is also referred to as “Elasticity of demand” or “demand Elasticity” or  “Elasticity”.
Share on whatsapp
Share on facebook
Share on twitter
Share on linkedin
Share on email

Leave a Comment