4. Price Elasticity of Demand
Change in demand as a result of change in
the price of commodity is known as Price
Elasticity of demand.
Ep= %change in quantity demanded
%change in price
or
5. Types of price elasticity of demand
1. 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 demand
The price of a commodity may rise or
fall considerably but the quantity
demanded of that commodity remains
unchanged.
7. 3. Relative elastic demand:
When a small change in the price leads
to a big change in the demand.
8. 4. Relatively inelastic demand
When 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 demand
It refers to the change in the consumer
income when prices & other factors
remain constant.
Ey= Proportionate change in quantities demanded
Proportionate change in income
or
11. Ex: If income of a consumer rises from
Rs.1000 to Rs.1200 & his purchase of
a commodity increases from 20 to 25
units.
12. Types of income elasticity of demand
1. 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 an
increase in income of the consumer
leads to a reduction in the quantity
demanded of a commodity.
14. 3. Unitary income elasticity of
demand
It 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<1
17. 3. Cross elasticity of demand:
It defined as the proportionate change
in the quantity demanded of a
particular commodity due to a change
in the price of another related
commodity.
Ec= %change in the demand for X
% change in the price of Y
18. Positive
When the quantity demanded of a
commodity increase with the increase
in the price of the other commodity.
19. Negative
In the case of complementary goods, if
the price of tea powder declines the
demand for sugar increase as both of
them are complementary
commodities.
20. Zero
When the change in the price of ‘Z’ will
not have any impact on the quantity
demanded ‘X’. That is they are
perfectly independent of each other.
There is no relationship between 2
commodities.
