Meaning of Elasticity of Demand
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Meaning of Elasticity of Demand

Meaning of Elasticity of Demand There is a very close connection between the quantity of the commodity purchased and the price of the commodity. Changes in prices are bound to affect the purchases. According to the law of demand, there is an inverse relation between demand and price.

Meaning of Elasticity of Demand

There is a very close connection between the quantity of the commodity purchased and the price of the commodity. Changes in prices are bound to affect the purchases. According to the law of demand, there is an inverse relation between demand and price. It tells us that, barring certain exceptional cases (e.g., inferior goods), demand extends when the price of the good falls and conversely demand contracts when its price rises. Thus, the law of demand indicates only the direction of change in the quantity demanded as a result of changes in the price. However, it does not tell us the amount or the extent by which the demand will change in response to a change in its prices. The concept which measures the responsiveness of quantities demanded to price changes is the Elasticity of Demand. Actually, it is price elasticity of demand which is generally referred to as Elasticity of demand.

However, there are a few other concepts of elasticity of demand. The amount demanded can change in response to a change in any of the several determinants of demand, e.g., price, income and prices of related goods, etc. Thus, there are various kinds of elasticities of demand, viz., price elasticity, income elasticity, cross elasticity and substitution elasticity.

However, it is the concept of price elasticity which is most commonly use in economic literature.

"The term elasticity expresses the degree of correlation between demand and price." It is the rate at which the quantity demanded varies with a change in price. Elasticity of demand indicates the responsiveness of demand to changing prices. It may be defined as the degree of response (in the form of variations in the quantity demanded) to changes in price."

To be more exact, “The elasticity of demand is a measure of the relative change in amount purchased in response to a relative change in price on a given demand curve."

Another precise definition by Mrs. Joan Robinson is this: "The elasticity of demand, at any price or at any output, is the proportional change of amount purchased in response to a small change in price, divided by the proportional change of price."

 

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