Demand Elasticities

They refer to responsiveness of demand for a particular good/commodity with respect to changes in the determinants of its demand. So elasticity is always with respect to something and there are as many elasticities of demand as there are denlmd-determinants. Mainly, we have

(a)Price elasticity of demand,

(b) Income elasticity of demand,

(c) Cross elasticity of demand,

(d) Promotional (advert) elasticity of demand, and

(e) Interest elasticity of demand.

In general, elasticity of variable x with respect to variable y is defined as

There are 5 critical values for this elasticity ranging from 0 to ...They are as follows :

0,<1,1,>1,infinity

Zero Price Elasticity

This is a case where demand is perfectly inelastic, i.e. demand is invariate to all change in price. Salt would be the closest example of this.

Price Elasticity < 1

Here demand is said to be relatively price inelastic, i.e. changes in price leads to less than proportionate change in demand. It is true with all the essential items of consumption.

Unit Price Elasticity

Here demand changes proportionately to changes In price.

Price Elasticity > 1
When percentage change in demand is greater than that of price. In such a case, we say demand is relatively price elastic.

Infinite Price Elasticity

Refers to as situation where demand is unlimited or w at given price. In a perfectly co~rlpetitive market, demand is said to be infinitely elastic or perfectly elastic.

The following diagrams illustrate these cases.

However on a falling straight line demand curve elasticity varies from point to point as is seen in Figure.