1. Elasticity of Demand

2. Meaning:It shows the reaction of one variable with respect to a change in other variable on which it is dependent. 3. Kinds of Elasticity of Demand: Price Income Cross 4. Price Elasticity of Demand Change in demand as a result of change inthe price of commodity is known as PriceElasticity of demand. Ep= %change in quantity demanded%change in priceor 5. Types of price elasticity of demand1. Perfectly elastic demand: Demand is said to be perfectly elastic when a very small rise in the price of a commodity causes the quantity demanded of that commodity to fall to zero & very small fall in its price leads to an infinite increase in the quantity demanded of that commodity 6. 2. Perfectly inelastic demandThe price of a commodity may rise orfall considerably but the quantitydemanded of that commodity remainsunchanged. 7. 3. Relative elastic demand:When a small change in the price leads to a big change in the demand. 8. 4. Relatively inelastic demandWhen a big change in the price leads to a small change in the demand. 9. 5. Unitary elastic demand:When a given % change in the price leads to an equal % change in the quantity demanded. 10. 2. Income elasticity of demandIt refers to the change in the consumer income when prices & other factors remain constant.Ey= Proportionate change in quantities demandedProportionate change in incomeor 11. Ex: If income of a consumer rises fromRs.1000 to Rs.1200 & his purchase ofa commodity increases from 20 to 25units. 12. Types of income elasticity of demand1. Zero income elasticity: It refers to a situation where change in income will have no effect on the quantities demanded. It is said to be zero when a change in income makes no change in the quantity demanded. 13. 2.Negative income elasticity:It is said to be negative when anincrease in income of the consumerleads to a reduction in the quantitydemanded of a commodity. 14. 3. Unitary income elasticity ofdemandIt is said to be unitary when an increase in income leads to a proportionate increase in the quantity demanded.Ei= 1 15. 4. Greater than one:It is greater than one when an increase in income leads to a more than proportionate increase in the quantity demanded.Ei>1 16. 5. Less than one:When an increase in income leads to a less than proportionate increase in the quantity demanded.Ei