ELASTICITY

Definition: Elasticity is the relative response of one variable to changes in another variable. It is commonly used in the study of the market exchanges to identify the relative response of quantity supplied or quantity demanded to changes in price.

Different types of elasticity of demand

Elasticity of demand can be divided into three types 1. Price elasticity of demand 2. Income elasticity of demand . !ross elasticity of demand

Price elasticity of demand

It refers to the responsiveness of the quantity demanded of any commodity to a change in it"s prices. EP # $percentage change in quantity demand%&$percentage change in price% EP# $ '&'%&$ P&P% (ere ) EP#Price elasticity of demanded. change in quantity demanded. '#Initial & primary quantity p#Percentage change in price
'#Percentage

P# Initial&primary price '# Initial & primary price

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&

P&P

# '&' * P& P # '& ' * P&'

Income elasticity of demand

It refers to the responsiveness of the reaction in the quantity of the reaction in the quantity of a commodity demanded to a change in consumers income. +ormula,#Percentage change in quantity demanded & Percentage change in income E #$ ' & ' %& $ y&y% #$ '&'% * $y& y% #$ '& y% *$y&'%

!ross elasticity of demand

It refers to the percentage change in quantity demanded due to percentage change in price of the another commodity. +ormula#percentage change in quantity fixed demanded of x & percentage change in price y. #
'x&'x

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py&py