Elasticity of DemandMeaning
There is a close connection between the quantity of a commodity purchased and its price. Changes in price are bound to affect the purchasers. The law of demand only indicates the direction of change in the quantity demanded as a result of change in prices. It does not tell the amount or the extant by which the demand will change in response to changes in prices. The concept which measures the responsiveness of quantities demanded to price changes is the elasticity of demand.
The term elasticity expresses the degree of correlation between demand and price. It is a result at which the quantity demanded varies with change in price. It may be defined as “ The degree of responses (in the form of variations in the quantity demanded) to changes in price.
To be more exact we can say that “the elasticity of demand is a measure of the relative change in amount purchased n response to a relative change in price n a given demand curve.”
There are various kinds of elasticity of demand viz:
1. Price elasticity
2. Income elasticity
3. Cross elasticity
4. Substitution elasticity