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3 B Elasticity of Demand

Introduction : unchanged. It is expressed as :

In the previous chapter you have already Ey = Percentage change in Qty. Demanded
studied the law of demand which shows the Percentage change in Income
inverse relationship between quantity demanded Symbolically,
and price of a commodity. The law of demand Ey = % Q
does not explain the extent of a change in % Y
demand due to a change in the price. Thus, Q Y
law of demand fails to explain the quantitative = Q ÷ Y
relationship between price and quantity = Q × Y
demanded. Therefore, Prof. Alfred Marshall Q Y
explained the concept of elasticity of demand. Where,

Concept of Elasticity of Demand :  = Represents change
The term elasticity indicates responsiveness Q = Orignal demand
of one variable to a change in the other variable. Y = Orignal income
Elasticity of demand refers to the degree of Q = Change in quantity demanded
responsiveness of quanitity demanded to a Y = Change in income of a consumer
change in its price or any other factor.

According to Prof. Marshall, “Elasticity You should know :
of demand is great or small according to the • Positive income elasticity
amount demanded which rises much or little for Normal goods for which demand
a given fall in price and quantity demanded falls increases with increase in income.
much or little for a given rise in price.” • Negative income elasticity
It is clear from the above definition that Inferior or goods for which demand

elasticity of demand is a technical term which decreases with increase in income of
describes the responsiveness of change in consumer.
quantity demanded to fall or rise in its price. In • Zero income elasticity
other words, it is the ratio of percentage change Necessary goods for which demand
in quantity demanded of a commodity to a remains constant with increase in income
percentage change in price.
of the consumer.
Types of Elasticity of Demand :
1) Income elasticity 2) Cross elasticity : It refers to a change in
quantity demanded of one commodity due
2) Cross elasticity
to a change in the price of other commodity.
3) Price elasticity
(Complementary goods or substitutes)
1) Income elasticity : It refers to the degree
of responsiveness of a change in quantity Ec = Percentage change in Qty. demanded of A
demanded to a change in the income Percentage change in Price of B
only, other factors including price remain (A = Original commodity, B = Other commodity)

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