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Elasticity of demand

The law of demand explains that demand will change due to a change in the price of the commodity. But it does not explain the rate at which demand changes to a change in price. i.e, Law of Demand explains only the direction of change but not the magnitude. Hence Law of demand is only a qualitative statement. The concept of ‘elasticity of demand’ measures the rate of change in demand.

Meaning of elasticity of demand

The concept of elasticity of demand was introduced by Alfred Marshall. According to him, “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”. Elasticity of Demand is the “measure of responsiveness or the degree of change in quantity demanded due to changes in one of the variables on which demand depends- these variables are price of a commodity, price of related commodities and income of consumers”.

Types of elasticity of demand

There are four types of elasticity of demand:
  • Price elasticity of demand
  • Income elasticity of demand
  • Cross elasticity of demand
  • Advertisement elasticity of demand.

Note: Unless otherwise stated, we always talk of price elasticity of demand.

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