Page 1 : ELASTICITY OF DEMAND, ➢ It is a technical term used by the economists to describe the degree, of responsiveness in the demand for a commodity., ➢ Alfred Marshall introduced the concept of elasticity of demand., TYPES OF ELASTICITY OF DEMAND, There are three main types of elasticity of demand. They areas following:, Elasticity of demand, , Price elasticity, of demand, , Income elasticity, of demand, , Cross elasticity of, demand, , PRICE ELASTICITY OF DEMAND, ➢ The ratio of percentage change in the quantity demanded of a, commodity as a result of percentage change in the price of that, commodity is called price elasticity of demand., ➢ I.e.; the degree of responsiveness in the qty demanded of a, commodity as a response of change in price of respective, commodity is called price elasticity of demand.

Page 2 : Where;, ∆𝑄, , =, , change in qty demanded, , Q, , =, , original qty demanded, , ∆𝑃, , =, , change in price, , P, , =, , original price, , ep, , =, , co efficient of elasticity of demand, , Determinants of price elasticity of demand, a. Availability of substitutes: goods with close substitutes have an, elastic demand and goods with no substitutes have inelastic demand., E.g. Commodities like pen, Pepsi etc have close substitutes, and hence have an inelastic demand., b. Income of the consumer: if a consumer income is high, the, elasticity of demand will be less because change in price will not, affect the qty demanded by the consumer and vice versa., c. Luxuries versus necessities: The price elasticity of demand is low, for necessary goods while high for luxury goods.

Page 3 : d. Cost relative to total income: Higher the cost relative to the total, income of the consumer more will be the price elasticity of demand., e. No of uses of the commodity: If the uses are high for a commodity, the demand is more elastic. If the uses are less it has inelastic, demand., f. Level of price: If the price of a commodity is high the price, elasticity of demand is more and if it is low its price elasticity of, demand is less., , TYPES OF PRICE ELASTICITYOF DEMAND, ➢ There are 5 types of price elasticity of demand., ➢ It is expressed in numerical value., ➢ It ranges from zero to infinity(0 to ∞), Perfectly inelastic demand (ed = 0), , Price, elasticity, of demand, , Inelastic demand, , (ed < 1), , Unitary elastic demand ( ed = 1), Elastic demand (1< ed < ∞), (1<ed<∞), Perfectly elastic demand, , Perfectly inelastic demand (ed=0), , (ed = ∞)

Page 4 : ❖ Whatever be the change in price there won’t be any change in the, qty demanded of a commodity. That is no percentage change in the, qty demanded with respect tom the percentage change in the, priced., Graph:, , Price, 15, 10, 20, , Inelastic demand (ed<1), , Demand, 10, 10, 10

Page 5 : ❖ When percentage change in qty demanded of a commodity is less, than percentage change in price it is called inelastic demand., Graph:, , Price, 10, 6, 4, , Unitary elastic demand (ed=1), , Demand, 20, 21, 23

Page 6 : ❖ When the given percentage change in demand is equal to the, percentage change in price, the demand for the commodity is said, to be unitary elastic., Graph:, , Price, 10, 8, 6, , Demand, 20, 22, 24

Page 7 : Elastic demand (1<ed<∞), ❖ When a small change in price leads to a more than proportionate, change in the demand, the demand is said to be elastic or more, than unit elastic., ❖ That is percentage change in demand is greater than percentage, change in price., Graph:, , Price, 10, 8, 6, , Demand, 20, 24, 26

Page 8 : Perfectly elastic demand (ed=∞), ❖ A small percentage change in the price creates an infinite, percentage change in demand is called perfectly elastic demand., ❖ When the commodity demanded falls or rises to an extent without, any change in price, the demand for the commodity is said to be, perfectly elastic., Graph:, , Price, 10, 10, 10, , Demand, 20, 40, 60