Elasticity’s of Demand: Price,
Income and Cross-Elasticity of
Demand
Meaning of Elasticity of Demand:
Demand extends or contracts respectively with a fall or rise in price.
This quality of demand by virtue of which it changes (increases or
decreases) when price changes (decreases or increases) is called
Elasticity of Demand.
“The elasticity (or responsiveness) of demand in a market is great
or small according 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”. – Dr. Marshall.
Elasticity means sensitiveness or responsiveness of demand to the
change in price.
This change, sensitiveness or responsiveness, may be small or great.
Take the case of salt. Even a big fall in its price may not induce an
appreciable ex appreciable extension in its demand. On the other
hand, a slight fall in the price of oranges may cause a considerable
extension in their demand. That is why we say that the demand in
the former case is ‘inelastic’ and in the latter case it is ‘elastic’.
ADVERTISEMENTS:
The demand is elastic when with a small change in price there is a
great change in demand; it is inelastic or less elastic when even a big
change in price induces only a slight change in demand. In the
words of Dr. Marshall, “The elasticity (or responsiveness) of
demand in a market is great or small according 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.”But the demand
cannot be perfectly ‘elastic’ or ‘inelastic’.
Completely elastic demand will mean that a slight fall (or rise) in
the price of the commodity concerned induces an infinite extension
(or contraction) in its demand. Completely inelastic demand will
mean that any amount of fall (or rise) in the price of the commodity
would not induce any extension (or contraction) in its demand.
Both these conditions are unrealistic. That is why we say that
elasticity of demand may be ‘more or less’, but it is seldom perfectly
elastic or absolutely inelastic.
There are as many elasticity’s of demand as its determinants.
The most important of these elasticity’s are:
(a) The price elasticity,
(b) The income elasticity,
(c) The cross-elasticity of demand.
The price elasticity of demand:
The price elasticity is a measure of the responsiveness of demand to
