ELASTICITY OF

DEMAND
Concept of elasticity of demand
A measurement of the change in
demand for a good or service in
relation to change in another
variable.
 For example: change in demand

due to price, income of the

consumer, price of related goods.
Price elasticity of demand
Price elasticity of demand is the ratio of the
percentage change in the quantity demanded of
a commodity to a percentage change in its price.

percentage change in quantity demanded

E=(-) ----------------------------------
percentage change in price

Suppose ,fall in price by 10% is followed by extension in demand by 20%. Fall in price is
indicated by minus (-) sign
E=(-) 20
--- =(-) -2 =2
10
Degrees of price elasticity of demand
 Price elasticity of demand of all goods at different prices ,is not
always same.it may be more or less.
 (1) Perfectly elastic demand : A perfectly elastic
demand is one in which a little change in price will cause an
infinite change in demand.
 y


 E(∞)
 price 4 Demand curve

 x
 quantity 10 30
(2)Perfectly inelastic demand

 A perfectly inelastic demand is one in which a change in price

produces no change in the quantity demanded.

Y
demand curve
6 E=0
price
4

2
X
4
quantity
(3) Unitary elastic demand

 Unitary elasticity of demand is one in which a percentage

change in price produces an equal percentage change in
demand.
 % change in price=% change in demand
 This type of demand curve is called rectangular hyperbola
 Y

 price(%) 4
 E=1
 demand curve
 2
 2 4 X

 quantity(%)
(4) Greater than unitary elastic or elastic
demand
 Greater than unitary elastic demand is one in
which a given percentage change in price
produces relatively more percentage change
in demand
 Change in demand > change in price
 Y
 5
 E>1
 price 3 demand curve

 X
 10 100
 Quantity
(5) less than unitary elastic or inelastic
demand
 less than unitary elastic demand is one in which a given percentage
change in price produces relatively less percentage change in demand
 Change in demand < change in price

 y


 10

 PRICE E<1

4 demand curve

 2 4 X

 Quantity