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Elasticity of Demand

The price elasticity of demand measures the relative change in quantity demanded of a commodity in response to a relative change in its price

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Degrees of elasticity ofdemand

1.Perfectly elastic demand2.Highly elastic demand3.Unitary elastic demand4.Highly inelastic demand5.Perfectly inelastic demand

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Perfectly elastic demand

•When price remains same•Quantity demanded changes

Highly elastic demandWhen change in demand is much more than change in price

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Unitary elastic demandChange in demand = change in price

Highly inelastic demandWhen change in price is more than the change in quantity demanded

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Perfectly inelastic demandWhen change in demand does not change with change in price

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Methods of calculating elasticity

of demand1.Percentage method2.Total outlay method3.Arc method4.Point method

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Types of elasticity of demand

1.Price elasticity of demand2.Income elasticity of demand3.Cross elasticity of demand

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Determinants of elasticity of

demand

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1. Time element

Demand is inelastic in short period but elastic in long period. It is because in the long run, a consumer can change his habits more conveniently than in the short run

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2. Nature of Commodity

Necessaries like salt, match box etc… have inelastic demand Luxuries like ac, furniture, fashionable clothes, have highly elastic demand

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3. Availability of Substitutes

Demand for those commodities which have substitutes are relatively more elastic because when the price of commodity falls in relation to its substitute, the consumer will go in for it and so its demand will increase

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Income of consumer Habit of consumer

Different uses of commodity

Price level

Postponement of use