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Elasticity of Demand-2

Chapter 3B discusses the concept of elasticity of demand, which measures how quantity demanded responds to changes in price and income. It outlines different types of elasticity, including income elasticity, cross elasticity, and price elasticity, along with their definitions and classifications. The chapter emphasizes the importance of understanding elasticity to analyze consumer behavior in response to price changes.

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8 views10 pages

Elasticity of Demand-2

Chapter 3B discusses the concept of elasticity of demand, which measures how quantity demanded responds to changes in price and income. It outlines different types of elasticity, including income elasticity, cross elasticity, and price elasticity, along with their definitions and classifications. The chapter emphasizes the importance of understanding elasticity to analyze consumer behavior in response to price changes.

Uploaded by

lusiferfustur
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 3B-

Elasticity of Demand
XII STANDARD
Introduction
 Law of demand shows the inverse relationship
between price and demand but it cannot explain
the extent of a change in demand due to the
change in the price.
 Prof. Alfred Marshall explained the concept of
elasticity of demand
 Elasticity indicates responsiveness of one
variable to change in the other variable.
Definition
 Prof. Marshall, “ Elasticity of demand is great or small
according to the amount of demanded which rises much
or little for a given fall in price and quantity demanded
falls much or little for a given rise in price.”
 Prof. Samuelson, “ Price elasticity is a concept for
measuring how much the quantity demanded responds to
changing price.”
 Elasticity is a technical term which describes the
responsiveness of change in quantity demanded to fall or
rise in its price.
Types of elasticity of demand
 Income elasticity of demand – Responsiveness of
quantity demanded of a commodity to a change in
consumers income.
ey = % change in quantity demanded
% change in income
Types – Positive Income Elasticity when increase in
income leads to increase in demand of the commodity
like normal goods ( comforts, luxuries and necessities).
 ey
= 1 for comforts, ey > 1 luxuries and ey <1 for
necessaries.
 Negative income elasticity of demand – Increase in
income leads to fall in demand for the commodity
like for inferior goods
 Zeroincome elasticity of demand – Increase or
decrease in income do not influence demand for the
commodity like for salt.
 Cross elasticity of demand – Demand for commodity
changes due to change in price of a substitute or
complimentary goods. Degree of responsiveness of
quantity demanded of X to change in Y
 ec = the percentage change in quantity demanded –X
the percentage change in price – Y
Types – Positive cross elasticity of demand - With an
increase in price of one commodity demand for
another commodity rises like Substitutes.
 Negative cross elasticity of demand – with an
increase in price of one commodity demand for
another commodity falls like for Complimentary
goods.
 Zero cross elasticity of demand – increase or
decrease in price of one commodity has no effect
on other commodity demanded like unrelated
goods ( car and washing machine )
 Price elasticity of demand – Responsiveness of quantity
demanded for a commodity to a given change in price.
 e = % change in quantity demanded
% change in price
Types – Unitary elastic demand (ed = 1)
Relatively elastic demand (ed > 1)
Relatively inelastic demand (ed < 1)
Perfectly elastic demand (ed = infinity)
Perfectly inelastic demand ( ed = 0)

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