What is Elasticity?



Till now we only discussed the direction of the changes in price and quantities demanded. But here we will answer the question “By how much”. and This how much is explained by the concept "elasticity".

Elasticity can be defined as the responsiveness of one variable as a result of change in other variable.When Price rises, Demand falls.And how much it falls depend on elasticity.

Elasticity of Demand
Elasticity of demand is defined as the responsiveness of the quantity demanded of a good to changes in one of the variables on which demand depends.

These variables are price of the commodity, prices of the related commodities, income of the consumer & other various factors on which demand depends. Thus, we have Price Elasticity, Cross Elasticity, Elasticity of Substitution & Income Elasticity. It is always price elasticity of demand which is referred to as elasticity of demand


Elasticity of Demand can be broadly classified into 3 types
  • Price Elasticity of Demand
  • Income Elasticity of Demand
  • Cross Elasticity
Elastic/Inelastic Demand
Elastic Demand–Where percentage change in demand is greater than percentage change in price
Inelastic Demand–Where percentage change in demand is less than percentage change in price

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