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Types of Elasticity of Demand in Economics.

What are the types of Elasticity of Demand in Economics? And mention the effect of price change on the quantity demanded of any commodity through a table.

 

Solutions

Expert Solution

                                       TABLE - 1.1

                             ( Elasticity and Consumer Outlays )

 

Price Change    Elasticity of Demand     Effect on Outlays 
                   > 1         Decrease
    Increase in Price                  = 1        No Effect
                   < 1         Increase
                   > 1         Increase
   Decrease in Price                   = 1       No Effect
                   < 1        Decrease

 

Types of Elasticity of Demand -

 

We have seen upper, the effect of price change on the quantity demanded of any commodity. This effect is actually called Price Elasticity of Demand. Similarly, there are other factors like income level or prices of other goods, which affect the demand of a commodity. In this way, we can say that elasticity of demand can be of three types-

(a) Price Elasticity of Demand :

Sensitivity of quanti demanded to change in price is called price elasticity of demand. This we have already analysed in great detail hence we now describe the other types.

 

(b) Income Elasticity of Demand :

It is the measure of responsiveness of quantity demanded to a change in income of the consumer. This can be expressed by the following formula.

 

Income Elasticity of Demand  =

Proportionate Change in Quantity / Proportionate change in                                                 Demanded                               Income            

 

 The income elasticity would ordinarily be positive except in case of inferior goods.

 

(c) Cross Elasticity of Demand :

When the price of any one commodity changes and due to this the quantity demanded of another commodity changes, the measurement of this change is called cross elasticity of demand.

The cross elasticity can be for both complementary goods and substitute goods.

The formula is as follows.

 

Cross Elasticity of Demand   =

Proportionate Change in Quantity  / Proportionate change in                                       Demanded of x                                  Price of y

 

For complementary goods the cross elasticity is negative, while for substitute goods it is positive.  

 


We have seen upper, the effect of price change on the quantity demanded of any commodity. This effect is actually called Price Elasticity of Demand.

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