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What is Elasticity of Demand?

by Puja

Under law of demand, price falls and demand rises, vice versa. Moreover the law of demand does not determines how much the quantity rise or fall for a given change in price. So the concept of elasticity of demand is derived to know how much quantity demanded changes for a change in the price of goods.

“The elasticity of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price”. – Dr. Marshall.

Therefore, elasticity means sensitivity of demand to the change in price.


EP = proportional changes in quantity demanded/proportional changes in price


Price elasticity of demand

Firstly, the price of elasticity demand refers to change in the quantity demanded to the price of the commodity

“Price elasticity is a ratio of proportionate changes in the quantity demanded of a commodity to a given proportionate change in its price.”

Thus, it is responsiveness of change in demand due to a change in price only. Other factors such as income, population, tastes, habits, fashions, prices of substitute and complementary goods assume to be constant.

Formula –

Ep = percentage change in quantity demanded/percentage change in price

Income elasticity of demand

Secondly, the income elasticity measures the sensitivity of quantity demanded for a goods to a change in consumer’s income.

Formula –  Percentage change in the quantity demanded / Percentage change in the consumer’s income

Cross elasticity of demand

“The cross elasticity refers to the proportional change in the quantity of X good demanded resulting from a given relative change in the price of a related good Y”  

Similarly, it measures the percentage change in the quantity demanded of commodity X to the percentage change in the price of its substitute/complement Y

Formula –  proportionate change in quantity demanded of X / Proportionate change in the price of Y

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