What is Elasticity of demand? | Income Elasticity of demand | Cross Elasticity of demand | Its methods, formulas and type of Elasticity of demand

What is Elasticity of Demand?

The degree of responsiveness of change in quantity demanded due to change in price of a commodity, income of consumer or price of related goods. There are 3 type of elasticity of demand.
1. price elasticity of demand.
2. Income elasticity of demand.
3. Cross elasticity of demand.

What is Price elasticity of demand?
Degree of responsiveness of change in quantity demanded due to change in price of a commodity. It means it helps to calculate how much quantity demanded has changed due to change in price of the commodity. There are some methods to calculate that:-

• Percentage method:-

     

•  Total expenditure method:- 

• Geometric method:-

In this method there is a formula 

lower segement devided by upper segment 

in above diagram at point A, upper segment is AG and lower segment is AH it means lower segment is bigger then upper segment so elasticity is elastic or we call call it more elastic. you can calculate estemate elasticity through this formula



Types of Elasticity of demand

1. Perfectly Elastic Demand (EP = ∞):-
when percentage change in price is zero then price elasticity of demand will be perfectly elastic.

2.Perfectly Inelastic Demand (EP = 0):-
when percentage change in quantity demanded is zero then price elasticity of demand will be perfectly Inelastic.

3. Relatively Elastic Demand (EP> 1):-
When percentage change in demand is greater than the percentage change in price. /then demand is said to be Elastic Demand.

4. Relatively Inelastic Demand (Ep< 1 ):-

When percentage change in quantity demanded is less than the percentage change in price. Then demand is said to be  Inelastic Demand.

5. Unitary Elastic Demand ( Ep = 1):-
When percentage change in quantity demanded is equal to the percentage change in price then it is known as unitary elastic demand.

• Proportionate Method:

What is Income elasticity of demand?
Degree of responsiveness of change in quantity demanded due to change in Income of consumer. It means it helps to calculate how much quantity demanded has changed due to change in income of consumer.

What is Cross elasticity of demand?
Degree of responsiveness of change in quantity demanded due to change in Price of related good. It means it helps to calculate how much quantity demanded has changed due to change in Price of related good.