Question

What is elasticity of demand? Give one example and state its types.

Answer 1

Elasticity of demand:

The extent to which demand responds to changes in any of its determinants such as price, income, tastes and preference, etc. is called elasticity of demand.

Types:
There are mainly three determinants of demand. They are:

1. Price of the good
2. Income of the consumer
3. Price of the related goods

Based on these three determinants, we can have three types of elasticity of demands. They are:

1. Price Elasticity of Demand (i.e. change in demand due to price)
2. Income Elasticity of Demand (i.e. change in demand due to income)
3. Cross Elasticity of Demahd (i.e. change in demand of one good with respect to change in price of another good)