# Types of Elasticity of Demand

#### Topics

• Price Elasticity of Demand (Ep)
• Income Elasticity of Demand (Ey)
• Cross Elasticity of Demand (Ec)

## Notes

### 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.