Class- Xll Elasticity of Demand.

Meaning of Elasticity of Demand

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‘’Elasticity of Demand refers to the degree of responsiveness of quantity demanded of a

commodity to a change in any of its determinants.’’

‘’Inelasticity of Demand refers to the degree of responsiveness of quantity demanded of a

commodity does not response with the change of its determinants’.

Types of Elasticity of Demand

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Name Price Elasticity of Demand Income Elasticity of Cross Elasticity of

Definition It refers to the ratio of the
percentage change in the
quantity demanded of a
commodity to a given
percentage change in its
price.
Percentage change in
quantity demanded.
Ep=
Percentage Change in
Formula price.
Demand Demand
It measures the degree of It is defined as the
responsiveness of the percentage change in
quantity demanded of a quantity demanded of
commodity to a change in commodity with respect
income of the consumers. to the change in the price
of its related commodity.
Percentage change in Percentage change in the
quantity demanded quantity demanded of
commodity X.
Ey= Exy-
Percentage change in Percentage change in the
Income price of commodity Y.

Equation ΔQ P ΔQ Y Δ Q x Py
Ep= X Ey= X----- Exy= X ------
ΔP Q ΔY Q ΔPy Qx
Ep= Price elasticity of Ey= Income elasticity of Exy= Cross elasticity of
demand. demand. demand.
Q= Initial quantity. Q= Initial quantity. Qx= Initial quantity of
P=original price. P=original price. commodity X
Δ Q = Change in quantity.
 ΔP = Change in price. Δ Q = Change in Py=original price of
quantity. commodity y.
ΔY = Change in Δ Q x = Change in
income. quantity of commodity x
ΔP y = Change in price
of commodity y.

Determinants/ Factors affecting of Price Elasticity of Demand.

https://www.youtube.com/watch?v=mKSBYx3VPPA

https://www.youtube.com/watch?v=EEaPLFvjZHs
Factors/Determinants Tend Towards Elasticity Tend Towards Inelasticity
Availability of More substitute available. ,Coco- Lack of Substitute.
Substitutes cola ,Pepsi, Thumps up etc. Tea and Salt.
Coffee. If price of Tea rises, demand Weak substitute;-Sugar,milk.
for coffee increases and Tea Demand does not effect
decreases. much with changes in price.
Nature of the Luxury goods . Necessary goods.
Commodity Air-condition, TV.Gold. Rice, wheat ,toothpaste
,uniform, textbook etc.
Proportion of the Larger portion of income spend. Smaller portion of income
Income Spent Furniture, Refrigerator. TV .Laptop spend. Salt, Match Box,
etc Candles.etc
The Number of Uses of Multiple uses of commodity. Single use goods. Petrol, Gas
the Commodity Electicity can be uses for lighting, etc.
cooking, heating etc.
Time Factor Long period .Long period price Short period.
elasticity will be elastic. Because we Natural Gas
can arrange a substitute in long
period. A product Natural gas may
be inelastic in short period. But in
the long run gas can be substitute
with some other fuel.
Possibility of Postponable want. Clothes, Urgent want. Food items,
Postponement of furniture.AC etc milk. textbook, uniform.
Consumption
Price Range Normal Price range. Clothes, Foods. Extremely High and Low
price. Refrigerator, Washing
machine.
Low price—Salt ,match
boxes.
 Habits of the Normality.
Consumers Normal people change their
demand as price of one commodity
rises. Tea and Coffee. If price of Tea
rises, they will buy more coffee.
Habit
If a person is habituated of
drinking coffee, he/she will
buy coffee only how much
price rises also.
A smoker will buy cigarettes
,how much prices will go up.

Write the following commodities are elastic or inelastic. Give reason.

Salt, Washing Machine, TV. Uniform , Medicine, Cold Drinks, Wheat ,Vegetables ,text books,
Laptop, Candles, Mobiles, Houses. Old coins, Refrigerator, Sofa set.

ASSIGNMENT;----

1.What do you mean by Elasticity of Demand?

2.Define Price elasticity of Demand.

3. Define Income elasticity of Demand.

4. Define Cross elasticity of Demand.

5. Write the formulae of the following

(a) Price elasticity of demand. (b) Income elasticity of demand. (c) Cross elasticity of demand.

6 .List the factors on which elasticity of demand depend?

7.Distinguish between Elastic and Inelastic demand.

8.Name two commodities whose demand is elastic. Give reason.

9. Is the demand for Pepsi elastic or inelastic? Why?

10.Name two commodities whose demand is inelastic. Give reason.

11. What will be the elasticity of demand for those goods to which the consumer is habituated?
Discuss.

12. Distinguish between Price elasticity and Income elasticity of Demand.