Question

Types of elasticity of demand other than Price elasticity, Examples, Graphs, Formula. What is point elasticity on a linear demand curve? Explain either by relevant example or by giving graphical explanation.

Answer 1

Answer. Other than Price elasticity of Demand, we have Income and Cross Elasticity of Demand.

Income elasticity of Demand measures the responsiveness of demand to changes in income. In other words, it tells the % change in demand due to the % change in income. For example, if the income of a person rises to 200 from 100 and demand rises to 20 from 10. then, Ie = (10/10) * (100/100) = 1.

For normal goods, Income elasticity of demand is positive. That is, when the income rises demand for the good increases. On the other hand, for inferior goods, income elasticity of demand is negative.

Cross Elasticity of Demand is the % change in quantity demanded of a good to the % change in price of other goods. The goods can be substitutes or complements. In case of substitutes, the cross elasticity of demand is positive. For example, if the price of tea rises, the demand for coffee will rise. On the other hand, cross elasticity of demand is negative. If the price of petrol rises, demand for cars will fall.

Point Elasticity on a demand curve measures the elasticity of demand on one particular point rather than over complete range. For example,