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ELASTICITY OF DEMAND
Elasticity of demand, a cornerstone concept in economics, precisely measures the

responsiveness of the quantity demanded of a good or service to changes in its price.
It essentially quantifies how much consumers adjust their purchasing behavior in
response to fluctuations in the price of a product or service.
The elasticity of demand formula, represented by Ed, can be calculated as the

percentage change in price divided by the percentage change in quantity demanded.
It illustrates the proportional connection between changes in price and quantity
demanded.
The percentage change in quantity demanded is determined by taking the

difference between the new quantity demanded and the original quantity
demanded,then dividing by the original quantity demanded and finally multiplying it
to 100% to express it as percentage
The percentage change in price is calculated similarly, with the difference being
the change in price divided by the original price, then multiplied by 100% to
express it as a percentage.
Percentage change in price=(Change in price\original price)×100%
Combining these percentages according to the elasticity formula yields the

elasticity of demand, indicating whether demand is relatively elastic, inelastic,
or unit elastic.
TYPES OF ELASTICITY OF
DEMAND
There are three types of elasticity of demand:
Price Elasticity of Demand
Income Elasticity of Demand
Cross Elasticity of Demand

Price Elastiticy Of Demand
Marshall, a renowned economist, is credited with introducing the concept
of price elasticity of demand. This concept is crucial in measuring the
sensitivity of quantity demanded to changes in price. It quantifies the
ratio of the percentage change in quantity demanded to the percentage
change in price.
By understanding the proportional change in the quantity demanded of

a product, economists can gain valuable insights into consumer behavior
and market dynamics. Price elasticity of demand (PED) is a useful tool for
economists and businesses to comprehend how changes in price impact
consumer behavior and demand for various goods and services.
The formula for calculating price elasticity of demand is: PED = % Change
in Quantity Demanded / % Change in Price.
Mathematical Expression
Mathematically, it can be expressed as:
Price elasticity of demand = %change in quantity demanded

%change in price
Symbolically, it can be expressed as:
η=%ΔQ
%ΔP
where,
η is the price elasticity of demand
%ΔQ is the percentage change in quantity demanded
%ΔP is the percentage change in price
Types Or Degrees Of Price Elasticity
of Demand
. Perfectly Elastic Demand (Ed = ∞)
. Perfectly Inelastic Demand (Ed = 0)
. Relatively Elastic Demand (Ed > 1)
. Relatively Inelastic Demand (Ed < 1)
. Unitary Elastic Demand (Ed = 1)
Income Elasticity Of Demand
The concept of income elasticity of demand quantifies how the
quantity demanded of a product or service changes in response
to a change in consumer income, assuming all other factors
remain constant. It is determined by dividing the percentage
change in quantity demanded by the percentage change in
income.
Elasticity of Demand•Income elasticity of demand measures how

much the quantity demanded of a good responds to a change
inconsumers’ income.
It is computed as the percentage change in the quantity

demanded divided by the percentage change in income
Income elasticity of demand = %change in quantity demanded

%change in income
E(y) =%ΔQ
%ΔY
where,
E(y) is the price elasticity of demand
%ΔQ is the percentage change in quantity demanded
%ΔY is the percentage change in price
Classification Of Income Elasticity Of
Demand:
There are generally four classifications of income elasticity of demand:
Normal Goods (YED > 0):For normal goods, the quantity demanded increases as income
increases. This means that the income elasticity of demand is positive but less than 1.
These goods have income elasticities between 0 and 1.
Inferior Goods (YED < 0):For inferior goods, the quantity demanded decreases as income
increases. This means that the income elasticity of demand is negative. These goods have
income elasticities less than 0.
Necessities (0 < YED < 1):Necessities are goods with income elasticities between 0 and 1.
Their quantity demanded increases with income, but at a slower rate compared to luxury
goods.
Luxury Goods (YED > 1):Luxury goods are those for which the quantity demanded
increases at a faster rate than income. Their income elasticity of demand is greater than 1.
As people become wealthier, they spend a larger proportion of their income on luxury
goods.
Cross Elasticity Of Demand
Cross-price elasticity of demand measures the responsiveness of the
quantity demanded of one good to changes in the price of another
good, assuming other factors remain constant. It is calculated as the
percentage change in quantity demanded of one good divided by the
percentage change in price of another good
Cross elasticity of demand (XED) measures how the quantity

demanded of one good changes in response to a change in the price
of another good, while keeping all other factors constant. It helps to
determine the relationship between two different goods in the market
To calculate cross elasticity of demand (XED), divide the percentage

change in the quantity demanded of one good by the percentage
change in the price of another good.
Income elasticity of demand=%change in quantity demanded of Good X

%change in price of Good Y
(XED)=(ΔQx) (ΔPy)
(Qx) (Py)
where
ΔQx is the change in the quantity demanded of good x
Qx is the initial quantity demanded of good x
ΔPy is the change in the price of good y
Py is the initial price of good y
Classification Of Cross Elasticity Of
Demand:
The classifications of cross elasticity of demand are based on the relationship between the
two goods
. Substitutes (XED > 0):

If the cross elasticity of demand is positive, it indicates that the two goods are substitutes.
An increase in the price of one good leads to an increase in the quantity demanded of the
other good.
Example: If the price of Pepsi increases, the quantity demanded for Coke might increase,
indicating that Pepsi and Coke are substitutes.
2. Complements (XED < 0):

If the cross elasticity of demand is negative, it indicates that the two goods are
complements.
An increase in the price of one good leads to a decrease in the quantity demanded of the
other good.
Example: If the price of printers increases, the quantity demanded for printer ink might
decrease, indicating that printers and printer ink are complements.
Classification Of Cross Elasticity Of
Demand:
3. Independent (XED = 0):
If the cross elasticity of demand is zero, it indicates that the two goods are
independent or unrelated.
Changes in the price of one good have no effect on the quantity demanded of the
other good.
Example: The cross elasticity of demand between apples and smartphones might be
close to zero, indicating that changes in the price of apples have little to no effect on
the quantity demanded of smartphones.
CONCLUSION
In conclusion, elasticity of demand is a
fundamental concept in economics that
measures the responsiveness of quantity
demanded to changes in various factors such
as price, income, or the price of related goods.
By analyzing elasticity, economists and
businesses gain valuable insights into
consumer behavior and market dynamics.
Presented by
ADITYA SHARMA
RAJISH KUMAR CHOUBEY

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ELASTICITY OF DEMAND

Elasticity of demand, a cornerstone concept in economics, precisely measures the

The elasticity of demand formula, represented by Ed, can be calculated as the

The percentage change in quantity demanded is determined by taking the

Percentage change in price=(Change in price\original price)×100%

Combining these percentages according to the elasticity formula yields the

Price Elasticity of Demand

Income Elasticity of Demand

Cross Elasticity of Demand

By understanding the proportional change in the quantity demanded of

Price elasticity of demand = %change in quantity demanded

Elasticity of Demand•Income elasticity of demand measures how

It is computed as the percentage change in the quantity

Income elasticity of demand = %change in quantity demanded

Cross elasticity of demand (XED) measures how the quantity

To calculate cross elasticity of demand (XED), divide the percentage

Income elasticity of demand=%change in quantity demanded of Good X

. Substitutes (XED > 0):

2. Complements (XED < 0):

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