Question

Define the elasticity of demand. Explain the types of elasticity of demand.

Answer 1

The Elasticity of Demandmeasures the percentage change in quantity demanded for a percentage change in the price. Simply, the relative change in demand for a commodity as a result of a relative change in its price is called as the elasticity of demand.

The three main types of elasticity of demand are now discussed in brief.

(1) Price Elasticity of Demand.

(2) Income Elasticity of Demand.

(3) Cross Elasticity of Demand.

Answer 2

Answer:

price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demand of a good or service to a change in its price in its price when nothing but the price changes.

four methods used for measuring elasticity of demand. The methods are:- 1. The Percentage Method 2. The Point Method 3. The Arc Method 4. Total Outlay Method.

1. The Percentage Method:

The price elasticity of demand is measured by its coefficient (Ep). This coefficient (Ep) measures the percentage change in the quantity of a commodity demanded resulting from a given percentage change in its price.

2. The Point Method:

Prof. Marshall devised a geometrical method for measuring elasticity at a point on the demand curve. Let RS be a straight line demand curve in Figure. 2. If the price falls from PB ( = OA) to MD ( = OC), the quantity demanded increases from OB to OD.

3. The Arc Method:

“Arc elasticity is a measure of the average responsiveness to price change exhibited by a demand curve over some finite stretch of the curve.”

4. The Total Outlay Method:

Marshall evolved the total outlay, or total revenue or total ex­penditure method as a measure of elasticity. By comparing the total expenditure of a purchaser both before and after the change in price, it can be known whether his demand for a good is elastic, unity or less elastic.