Advertisement Remove all ads

Types of Elasticity of Demand

Advertisement Remove all ads

Topics

notes

Types of Elasticity of Demand:

1) Income Elasticity:

It refers to the degree  of responsiveness of a change in quantity demanded to a change in the income only, other factors including price remain unchanged. It is expressed as :

`"Ey" = "Percentage change in Qty. Demanded"/"Percentage change in Income"`

`"Ey" = "% Δ Q"/"% ΔY"`

`="ΔQ"/"Q"÷"ΔY"/"Y"`

`="ΔQ"/"Q"xx"Y"/"ΔY"`

Where,

Δ = Represents Change
Q = Orignal demand
Y = Orignal income
ΔQ = Change in quantity demanded
ΔY = Change in income of a consumer

You should know : 
• Positive income elasticity:
Normal goods for which demand  increases with increase in income. 

• Negative income elasticity:
Inferior or goods for which demand  decreases with increase in income of  consumer.

• Zero income elasticity:
Necessary goods for which demand remains constant with increase in income of the consumer.

2) Cross elasticity :

It refers to a change in  quantity demanded of one commodity due to a change in the price of other commodity. (Complementary goods or substitutes)

`"Ec" ="Percentage change in Qty. demanded of A"/"Percentage change in Price of B"`

Symbolically,

`"Ec"="%ΔQ"_"A"/"%ΔP"_"B"`

`="ΔQ"_"A"/"Q"_"A"÷"ΔP"_"B"/"P"_"B"`

`="ΔQ"_"A"/"Q"_"A"xx"P"_"B"/"ΔP"_"B"`

Where,
QA = Original quantity demanded of commodity A
QA= Change in quantity demanded of commodity A
PB = Original price of commodity B
ΔPB = Change in price of commodity B

You should know : 
• Positive cross elasticity :
Substitute goods. Example, tea and coffee.

• Negative cross elasticity : Complementary goods. Example, tea and sugar.

• Zero cross elasticity : Non-related goods. Example, tea and books.

3) Price elasticity :

According to Prof. Alfred Marshall, price elasticity of demand is a ratio of proportionate change in the quantity demanded of a commodity to a given proportionate change in its price only.

`"Ed" ="Percentage change in Qty. demanded"/"Percentage change in Price"`

`"Ed"="%ΔQ"/"%ΔP"`

`="ΔQ"/"Q"÷"ΔP"/"P"`

`="ΔQ"/"Q"xx"P"/"ΔP"`

Where,
Q = Original quantity demanded
ΔQ = Difference between the new quantity and original quantity demanded
P = Original price
ΔP = Difference between new price and original price

If you would like to contribute notes or other learning material, please submit them using the button below.
Advertisement Remove all ads
Share
Notifications

View all notifications


      Forgot password?
View in app×