Class 12 Economics – Elasticity of
Demand
Introduction
The law of demand tells us that when the price of a commodity falls, its demand rises, and
when the price rises, the demand falls. However, it does not tell us the exact extent to which
demand will change. For example, if the price of apples falls by 10 percent, demand may
increase by 20 percent, 40 percent, or only 5 percent. The elasticity of demand explains this
variation by measuring the responsiveness of demand to a change in price, income, or the
price of related goods.
Meaning of Elasticity of Demand
Elasticity of demand refers to the degree of responsiveness of the quantity demanded of a
commodity to a change in its determinants. These determinants may be the price of the
commodity itself, the income of the consumer, or the price of related goods.
In simple terms, elasticity answers the question: ‘By how much does demand change when
its influencing factor changes?’
Mathematically, it is expressed as:
Elasticity = (% Change in Quantity Demanded) / (% Change in Determinant)
Types of Elasticity of Demand
1. Price Elasticity of Demand (Ed): Measures the responsiveness of the quantity demanded
of a commodity to a change in its own price, while keeping all other factors constant.
Example: If the price of tea falls by 10 percent and its demand rises by 20 percent, the price
elasticity of demand is 2.
2. Income Elasticity of Demand (Ey): Measures the responsiveness of demand for a
commodity to a change in consumer’s income. Example: If income rises by 5 percent and the
demand for ice cream increases by 10 percent, the income elasticity of demand is 2.
3. Cross Elasticity of Demand (Ec): Measures the responsiveness of demand for a good to a
change in the price of another related good. Example: If the price of coffee rises and demand
for tea increases, cross elasticity is positive; if the price of cars rises and demand for petrol
falls, cross elasticity is negative.
Demand
Introduction
The law of demand tells us that when the price of a commodity falls, its demand rises, and
when the price rises, the demand falls. However, it does not tell us the exact extent to which
demand will change. For example, if the price of apples falls by 10 percent, demand may
increase by 20 percent, 40 percent, or only 5 percent. The elasticity of demand explains this
variation by measuring the responsiveness of demand to a change in price, income, or the
price of related goods.
Meaning of Elasticity of Demand
Elasticity of demand refers to the degree of responsiveness of the quantity demanded of a
commodity to a change in its determinants. These determinants may be the price of the
commodity itself, the income of the consumer, or the price of related goods.
In simple terms, elasticity answers the question: ‘By how much does demand change when
its influencing factor changes?’
Mathematically, it is expressed as:
Elasticity = (% Change in Quantity Demanded) / (% Change in Determinant)
Types of Elasticity of Demand
1. Price Elasticity of Demand (Ed): Measures the responsiveness of the quantity demanded
of a commodity to a change in its own price, while keeping all other factors constant.
Example: If the price of tea falls by 10 percent and its demand rises by 20 percent, the price
elasticity of demand is 2.
2. Income Elasticity of Demand (Ey): Measures the responsiveness of demand for a
commodity to a change in consumer’s income. Example: If income rises by 5 percent and the
demand for ice cream increases by 10 percent, the income elasticity of demand is 2.
3. Cross Elasticity of Demand (Ec): Measures the responsiveness of demand for a good to a
change in the price of another related good. Example: If the price of coffee rises and demand
for tea increases, cross elasticity is positive; if the price of cars rises and demand for petrol
falls, cross elasticity is negative.
