Elasticity of Demand

1st year POE - Principles of Economics Notes

Elasticity of Demand



Meaning



There is a close connection between the quantity of a commodity
purchased and its price. Changes in price are bound to affect the
purchasers. The law of demand only indicates the direction of change in
the quantity demanded as a result of change in prices. It does not tell
the amount or the extant by which the demand will change in response
to changes in prices. The concept which measures the responsiveness of
quantities demanded to price changes is the elasticity of demand.

The term elasticity expresses the degree of correlation between demand
and price. It is a result at which the quantity demanded varies with
change in price. It may be defined as “ The degree of responses (in the
form of variations in the quantity demanded) to changes in price.

To be more exact we can say that “the elasticity of demand is a measure
of the relative change in amount purchased n response to a relative
change in price n a given demand curve.”

Kinds



There are various kinds of elasticity of demand viz:

1. Price elasticity

2. Income elasticity

3. Cross elasticity

4. Substitution elasticity

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