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CONCEPTS OF ELASTICITY OF DEMAND

Elasticity of Demand
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↓ ↓ ↓
Price Elasticity Income Elasticity Cross Elasticity
of Demand of Demand of Demand

Price Elasticity of Demand

Meaning:
There is an inverse relationship between quantity demanded and the price of the
commodity as per the law of demand. This law does not state the degree of change in
demand due to a change in price. There are commodities whose demand is more
responsive and others less responsive to change in the price. The responsiveness of the
demand to change in the price of a commodity is known as elasticity of demand. In other
words, the concept of elasticity of demand explains the definite relationship between
changes in demand and the price of the commodity. In simple words, the change in
quantity demanded due to change in price is termed as the elasticity of demand.
According to Marshall, "The elasticity of demand in the market is great or small
according to as the amount demanded increases much or little for a given fall in price
and diminishes much or little for a given rise in price". In the words of Prof. Boulding,
"It measures the responsiveness of the quantity demanded to change in the price". In
simple words, when we measure the proportionate change in the quantity demanded of a
commodity due to change in its price, it is known as elasticity of demand.
The elasticity of demand can be defined as the ratio of the percentage change in
quantity demanded to the percentage change in price.\
Ed = Percentage change in quantity demand
Percentage change in price
Algebraically this formula can be expressed as under:

Change in demand (q1 – q)

Ed = Original demand (q) × 100
Change in price (p1− p)
Original price (p) × 100
Ed = Change in demand ÷ Change in price
Original demand Original price
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∆q ∆p
= ÷
Q p

∆q p
= q x ∆p

∆q p
= ∆p x q

Here, ∆q = change in quantity demanded, ∆p = change in price, p = original

price, q = original quantity demanded.

Different Types/Degrees of Price Elasticity of Demand

We have defined elasticity as a proportionate ratio of the percentage change in

quantity demanded to a percentage change in the price of a commodity. On this basis, we
can distinguish between five kinds of elasticity as follows:

1. Perfectly inelastic demand: Demand for a commodity will be said to be perfectly

inelastic if the quantity demanded does not change at all in response to a given
change in price. Here the coefficient of elasticity of demand is equal to zero (Ed =
0). The demand curve in this case is a vertical straight line parallel to the Y-axis
as shown in the diagram. Consider the following demand schedule relating to a
household's demand for salt during a month:
Demand schedule
Price (` per kg) Quantity demanded (kg)
5 5
10 5
15 5

Demand curve
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2. Perfectly elastic demand: Demand for a commodity will be said to be perfectly

elastic demand when demand for any commodity may increase or decrease to any
extent irrespective of any change in price or very small change in price. In other
words, when with a very small rise in price, demand becomes zero or on the same
price demand becomes infinite, It is known as perfectly elastic demand. In this
case coefficient of elasticity of demand is equal to infinity (Ed=∞). The demand
curve will be a horizontal straight line parallel to X-axis.
Demand schedule
Price (`) Quantity demanded (unit)
4 2
4 4

Demand curve

3. Unit elastic demand: The demand for a commodity said to be unit elastic when
percentage change in the quantity demanded is equal to the percentage change in
price. In this case coefficient of elasticity of demand is equal to one (Ed=1) as
percentage change in demand for a commodity and price is the same. Demand
curve takes the shape of rectangular hyperbola because the area under the demand
curve will always be equal.
Demand schedule & demand curve
Price of cloth per metre (`) Quantity demanded (metre)
100 100
150 50
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4. More than unit elastic demand: The demand for a commodity is said to be more
than unit elastic when percentage change in the quantity demanded is greater than
the percentage in price. Elasticity coefficient in this case is greater than one
(Ed>1). The demand curve in this case is a flatter curve.

Demand schedule
Price (` per kg) Quantity demanded (kg)
3 50
2 300

Demand curve
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5. Less than unit elastic demand: The demand for a commodity is said to be less
than unit elastic when percentage change in the quantity demanded is less than the
percentage in price. Elasticity coefficient in this case is less than one (Ed<1). The
demand curve in this case is a steep curve.

Demand schedule
Price (` per kg) Quantity demanded (kg)
5 2
2 3

Demand curve

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