Question

How does the elasticity of demand for a commodity affect the level of consumption?

Answer 1

There are three types elasticity of demand which affects the consumption level of consumers 1. Price elasticity of demand : It measures the percentage change in quantity demanded of a commodity to percentage change in price of that commodity . If demand for a commodity is highly price elastic, as price increases, demand for commodity falls more than increase in prices and if price decreases, demand for commodity rises more than fall in prices. If demand for a commodity is less price elastic, as price rises, demand for commodity falls less than rise in prices 2. Income elasticity of demand : It measures percentage change in demand for commodity due to percentage changes in income of the consumer. Income elasticity of demand is positive for luxury goods . That means as income rises consumer will consume more luxury goods and as income falls consumer purchases less amount of luxury goods. Income elasticity of demand is negative for inferior goods. As income rises, consumption of inferior good s decreases and as income falls, consumption of inferior good rises. 3. Cross elasticity of demand : It measures percentage change in demand for commodity Y due to percentage change in price of commodity Y. Cross elasticity of demand for substitute goods are positive. As price of commodity Y rises, consumption for commodity X increases. Cross elasticity of demand for complementary goods are negative. As price of commodity Y rises, consumption of commodity X falls.