The concept of Price Elasticity was developed by great neo-classical economist Dr. Alfred Marshall in the year 1890.
According to Dr. Alfred Marshall, “The elasticity or responsiveness of demand in a market is great or small, according to the amount demanded which increases much or little for a given fall in price, and diminishes much or little for a given rise in price.”
Elasticity of demand in fact refers to the degree of responsiveness of the quantity demanded of a commodity to change in the variable on which demand depends.
Types of Elasticity of Demand :
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand
1. Price Elasticity of Demand : It is a ratio of proportionate change in the quantity demanded of a commodity to a given proportionate change in its price.
\(ed = \cfrac{ Percentage\, change\, in\, Quantity\, Demanded}{Percentage\, change\, in\, Price}\)
There are 5 types of Price Elasticity of demand i.e.
1. Perfectly Elastic demand (Ed = ∞)
2. Perfectly Inelastic demand (Ed = 0)
3. Unitary Elastic demand (Ed = 1)
4. Relatively Elastic demand (Ed > 1)
5. Relatively Inelastic demand (Ed < 1)
2. Income Elasticity of demand : It refers to the degree of responsiveness of a change in the quantity demanded to a change in the income only, other factors including price remaining unchanged.
\(\cfrac{ Percentage\, change\, in\, Quantity\, Demanded}{Percentage\, change\, in\, Income}\)
There are 3 types of Income elasticity i.e:
1. Positive Income elasticity
2. Negative Income elasticity
3. Zero Income elasticity
3. Cross Elasticity of Demand : It refers to a change in quantity demanded of one commodity due to a change in the price of other commodity i.e. complementary goods or substitute goods.
Percentage change in Quantity demanded
\(\cfrac{of\, Commodity\, 'X'}{Percentage\, in\, Price\, of\, Commodity\, 'Y'}\)
Cross elasticity of demand are of 3 types i.e.
1. Positive Cross elasticity
2. Negative Cross elasticity
3. Zero Cross elasticity
