- Category
- >Financial Analytics
Elasticity of Demand and its Types
- Ritesh Pathak
- Jan 16, 2021
- Updated on: Nov 21, 2023
Elasticity is a concept in economics that talks about the effect of change in one economic variable on the other.
Elasticity of Demand, on the other hand, specifically measures the effect of change in an economic variable on the quantity demanded of a product. There are several factors that affect the quantity demanded for a product such as the income levels of people, price of the product, price of other products in the segment, and various others.
Let’s begin our blog with a definition of Elasticity of Demand and then we will explore the different types of Elasticity of Demand.
Also, read our blog on 4 types of Elasticity in economics
Elasticity of Demand
Elasticity of Demand, or Demand Elasticity, is the measure of change in quantity demanded of a product in response to a change in any of the market variables, like price, income etc. It measures the shift in demand when other economic factors change.
In other words, the elasticity of demand is the percentage change in quantity demanded divided by the percentage change in another economic variable.
The demand for a commodity is affected by different economic variables:
-
Price of the commodity
-
Price of related commodities
-
Income level of consumers
We will read about these in detail, later in the blog.
“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”.
– Alfred Marshall, British Economist
3 Types of Elasticity of Demand
On the basis of different factors affecting the quantity demanded for a product, elasticity of demand is categorized into mainly three categories: Price Elasticity of Demand (PED), Cross Elasticity of Demand (XED), and Income Elasticity of Demand (YED).
Let us look at them in detail and their examples.
1. Price Elasticity of Demand (PED)
Any change in the price of a commodity, whether it’s a decrease or increase, affects the quantity demanded for a product. For example, when there is a rise in the prices of ceiling fans, the quantity demanded goes down.
This measure of responsiveness of quantity demanded when there is a change in price is termed as the Price Elasticity of Demand (PED).
The mathematical formula given to calculate the Price Elasticity of Demand is:
PED = % Change in Quantity Demanded % / Change in Price
The result obtained from this formula determines the intensity of the effect of price change on the quantity demanded for a commodity.
2. Income Elasticity of Demand (YED)
The income levels of consumers play an important role in the quantity demanded for a product. This can be understood by looking at the difference in goods sold in the rural markets versus the goods sold in metro cities.
The Income Elasticity of Demand, also represented by YED, refers to the sensitivity of quantity demanded for a certain good to a change in real income (the income earned by an individual after accounting for inflation) of the consumers who buy this good, keeping all other things constant.
Speaking of inflation, you can also take a look at our blog on what is inflation.
The formula given to calculate the Income Elasticity of Demand is given as:
YED = % Change in Quantity Demanded% / Change in Income
The result obtained from this formula helps to determine whether a good is a necessity good or a luxury good.
3. Cross Elasticity of Demand (XED)
In a market where there is an oligopoly, multiple players compete. Thus, the quantity demanded for a product does not only depend on itself but rather, there is an effect even when prices of other goods change.
Cross Elasticity of Demand, also represented as XED, is an economic concept that measures the sensitiveness of quantity demanded of one good (X) when there is a change in the price of another good (Y), and that’s why it is also referred to as Cross-Price Elasticity of Demand.
The formula given to calculate the Cross Elasticity of Demand is given as:
XED = (% Change in Quantity Demanded for one good (X)%) / (Change in Price of another Good (Y))
The result obtained for a substitute good would always come out to be positive as whenever there is a rise in the price of a good, the demand for its substitute rises. Whereas, the result will be negative for a complementary good.
These three types of Elasticity of Demand measure the sensitivity of quantity demanded to a change in the price of the good, income of consumers buying the good, and the price of another good.
Apart from these three types, we have some other types of Elasticity of Demand which we would look at now.
Also, take a sneak peek at our blog on 5 key elements of financial analysis
5 other types of Elasticity of Demand
The effect of change in economic variables is not always the same on the quantity demanded for a product.
The demand for a product can be elastic, inelastic, or unitary, depending on the rate of change in the demand with respect to the change in the price of a product.
On the basis of the amount of fluctuation shown in the quantity demanded of a good, it is termed as ‘elastic’, ‘inelastic’, and ‘unitary’.
-
An elastic demand is one that shows a larger fluctuation in the quantity demanded of a product, in response to even a little change in another economic variable. For example, if there is a hike of $0.5 in the price of a cup of coffee, there are very high chances of a steep decline in the quantity demanded.
-
An inelastic demand is one that shows a very little fluctuation in the quantity demanded with respect to a change in another economic variable. An example of this can be petrol or diesel.
-
Unitary elasticity is one in which the fluctuation in one variable and quantity demanded is equal.
We can further classify these elastic and inelastic types of demand into five categories.
Demand Curves
1. Perfectly Elastic Demand
When there is a sharp rise or fall due to a change in the price of the commodity, it is said to be perfectly elastic demand.
In perfectly elastic demand, even a small rise in price can result in a fall in demand of the good to zero, whereas a small decline in the price can increase the demand to infinity.
However, perfectly elastic demand is a total theoretical concept and doesn’t find a real application, unless the market is perfectly competitive and the product is homogenous.
The degree of elasticity of demand helps to define the slope and shape of the demand curve. Therefore, we can determine the elasticity of demand by looking at the slope of the demand curve.
A Flatter curve will represent a higher elastic demand. Thus, the slope of the demand curve for a perfectly elastic demand is horizontal.
2. Perfectly Inelastic Demand
A perfectly inelastic demand is the one in which there is no change measured against a price change.
Like perfectly elastic demand, the concept of perfectly inelastic is also a theoretical concept and doesn’t find a practical application. However, the demand for necessity goods can be the closest example of perfectly inelastic demand.
The numerical value obtained from the PED formula comes out as zero for a perfectly inelastic demand.
The demand curve for a perfectly inelastic demand is a vertical line i.e. the slope of the curve is zero.
3. Relatively Elastic Demand
Relatively elastic demand refers to the demand when the proportionate change in the demand is greater than the proportionate change in the price of the good. The numerical value of relatively elastic demand ranges between one to infinity.
In relatively elastic demand, if the price of a good increases by 25% then the demand for the product will necessarily fall by more than 25%.
Unlike the aforementioned types of demand, relatively elastic demand has a practical application as many goods respond in the same manner when there is a price change.
The demand curve of relatively elastic demand is gradually sloping.
Demand Curves
4. Relatively Inelastic Demand
In a relatively inelastic demand, the proportionate change in the quantity demanded for a product is always less than the proportionate change in the price.
For example, if the price of a good goes down by 10%, the proportionate change in its demand will not go beyond 9.9..%, if it reaches 10% then it would be called unitary elastic demand.
The numerical value of relatively inelastic demand always comes out as less than 1 and the demand curve is rapidly sloping for such type of demand.
Recommended Read | Microeconomics vs Macroeconomics
5. Unitary Elastic Demand
When the proportionate change in the quantity demanded for a product is equal to the proportionate change in the price of the commodity, it is said to be unitary elastic demand.
The numerical value for unitary elastic demand is equal to 1. The demand curve for unitary elastic demand is represented as a rectangular hyperbola.
Conclusion
We can conclude the blog by stating the fact that the demand for a commodity is affected by several factors and the three main types of elasticity of demand explains the effect of those factors.
To explain the extent of the effect of the economic variables on the quantity demanded, we have 5 other types of elasticity of demand which are perfectly elastic, perfectly inelastic, relatively elastic, relatively inelastic, and unitary elastic.
Share Blog :
Or
Be a part of our Instagram community
Trending blogs
5 Factors Influencing Consumer Behavior
READ MOREElasticity of Demand and its Types
READ MOREAn Overview of Descriptive Analysis
READ MOREWhat is PESTLE Analysis? Everything you need to know about it
READ MOREWhat is Managerial Economics? Definition, Types, Nature, Principles, and Scope
READ MORE5 Factors Affecting the Price Elasticity of Demand (PED)
READ MORE6 Major Branches of Artificial Intelligence (AI)
READ MOREScope of Managerial Economics
READ MOREDijkstra’s Algorithm: The Shortest Path Algorithm
READ MOREDifferent Types of Research Methods
READ MORE
Latest Comments
arnoldsyd3308db0b8535cb4934
Jul 24, 2024Using this Medium to share with y’all my Experience with a fraudulent Cryptocurrency trading Platform and how the Service of R O O T K I T S R E C O V E R Y F I R M was able to retrieve back my lost funds. few months ago i started my first ever crypto investment with a crypto investment company through a Lady i had met on my LinkedIn we actually have been friends for almost a year, along the line she mentioned about this company to me and how she had been earning money from there and did provide me with some proofs of successful transactions and certificate of the company. after i thought about it and also viewed it as an investment opportunity i then went ahead and made a couple of investment with them, but when it was time for me to withdraw my total profits, they started giving some excuses regarding the company upgrade, taxes and co as was unable to make the withdrawal successfully. the support was not helping out in anyway as they kept requesting for more money, while all this was happening personally i got really disturb and depressed, a friend of mine who i opened up to in order to lend some money so i could at least pay the fees and have my funds back but on approaching him, he told me that this could be scam that he had seen victims talked about this online and advice i should get a hacker. left to me i never believe that could be possible but as it goes i went online and made some deep Research about the best hacking team to help me recover back my funds.. Lucky enough i found R O O T K I T S R E C O V E R Y F I R M through the individual review section, most victims testified to their expertise experience in retrieving lost crypto to scammers, so i contacted their email: R O O T K I T S 4 @ G M A I L . C O M , They responded once and i gave them the necessary info they required to execute the recovery of my lost crypto investment. to be honest i was in a great shock when they informed me that the process is completed and asked that i should confirm if the funds is available in my wallet, and when i checked and saw my funds sitting right there in my wallet for a moment i was lost for words as the Team has done a great Job to recover my lost investments back just within a few days i couldn’t be more thankful, If you have been a victim of crypto or binary scam you can contact the R O O T K I T S R E C O V E R Y F I R M, this Team really amazed me and I’m blessed to have met them at the right time . you can as well reach them over on the Telegram; (ROOTKITS7)
randolphfiona301
Jul 25, 2024Losing thousands of dollars to crypto scammers on my very first investment attempt was a tough experience. Fortunately, my funds were safely recovered within a week after contacting K N I G H T H O O D B O T H A C K CORP through email at K N I G H T H OO D B O T @ G MAIL COM . Reading several positive reviews about the company and their competent recovery team instilled a spark of hope in me. K N I G H T H O O D B O T H A C K CORP is renowned for their exceptional recovery services. Their expertise doesn’t just lie in their technical capabilities; their client service is also outstanding. They ensure that you are guided through every step of the process until the goal is successfully achieved. It's easy to fall prey to scam companies that present themselves as legitimate, especially if you are new to the crypto community. These fraudulent entities often lure investors with promises of enormous returns, only to request additional, undisclosed fees later on—a frustrating and deceiving tactic. However, my experience with K N I G H T H O O D B O T H A C K CORP was entirely different. Their professionalism and transparency made the recovery process clear and efficient. I am sincerely pleased with the results and their supportive approach. If you find yourself in a similar situation, you can also reach out to them via Telegram with the username K N I G H T H O O D B O T 9 . In my opinion, these individuals are experts in the field and can help you recover your lost assets with great proficiency.
randolphfiona301
Jul 25, 2024Losing thousands of dollars to crypto scammers on my very first investment attempt was a tough experience. Fortunately, my funds were safely recovered within a week after contacting K N I G H T H O O D B O T H A C K CORP through email at K N I G H T H OO D B O T @ G MAIL COM . Reading several positive reviews about the company and their competent recovery team instilled a spark of hope in me. K N I G H T H O O D B O T H A C K CORP is renowned for their exceptional recovery services. Their expertise doesn’t just lie in their technical capabilities; their client service is also outstanding. They ensure that you are guided through every step of the process until the goal is successfully achieved. It's easy to fall prey to scam companies that present themselves as legitimate, especially if you are new to the crypto community. These fraudulent entities often lure investors with promises of enormous returns, only to request additional, undisclosed fees later on—a frustrating and deceiving tactic. However, my experience with K N I G H T H O O D B O T H A C K CORP was entirely different. Their professionalism and transparency made the recovery process clear and efficient. I am sincerely pleased with the results and their supportive approach. If you find yourself in a similar situation, you can also reach out to them via Telegram with the username K N I G H T H O O D B O T 9 . In my opinion, these individuals are experts in the field and can help you recover your lost assets with great proficiency.
fredrikekman363df003db84eff4f03
Jul 25, 2024Cryptocurrency Trading is a life time opportunity to make more money from the comforts of your home and I have never lost my investment funds since I started crypto investments until now, I made the wrong call investing with this particular crypto trading platform which took away my money deceiving me into believing I was dealing with the right people. I put in a total of $330,000 worth of cryptocurrency and watched my investment funds grow each passing day but was unable to access my investment funds the moment I wanted a withdrawal, for months I tried reaching out to the investment platform but all my messages pleading with them to get back my funds weren't answered with so many debts on me which I didn't know how to pay back. Amid my predicament appeared a glimmer of hope in the form of DARKRECOVERYHACKS RECOVERY FIRM which is one of the leading recovery firm and a first class recovery firm that has what it takes to make sure lost investment funds are retrieved back to the original owners, with their expertise in recovering back lost funds, I was able to get back my lost investment funds working with them on my case. Although I had my doubts during the recovery process, but DARKRECOVERYHACKS were able to address my fears answering to my questions and explaining their recovery process to me, also they maintained a transparent communication keeping me informed on the progress made with the recovery process. I will forever be grateful to DARKRECOVERYHACKS for what they did for me when I had no hope of ever getting back my lost investment funds which is why I'm recommending them for victims of online fraud to know that it's possible getting back lost funds with the expertise of this amazing expert recovery company specialized in the art of retrieving stolen funds, I am a testament of their capabilities and commitment to customer satisfaction which is what really sets them apart. Telegram ID @ DARKRECOVERYHACKS. Email: DARKRECOVERYHACKS @ GMAIL.COM.
brandonbates29018462afb97864676
Jul 25, 2024On my mind, I decided and conceded I had lost my investment funds $500,000 worth of cryptocurrency to scammers investing into cryptocurrency, but after reading a comment online about COREASSETINC RECOVERY FIRM by a scam victim who recovered back his lost investment funds with the recovery service of COREASSETINC. On reading through the comment I decided to give it a try to see how it turns out, I wrote them through their Telegram handle: @ COREASSETINC and told them my story of which they assured me my lost funds will be recovered. I paid their service charges before they commenced with the recovery process which started with a thorough investigation of the fake platform with the information I provided on their request, even after hiring them I doubted the possibility of ever getting my money back with how I lost everything. I was communicating with them on the recovery progress and they maintained a transparent communication process which was a lifeline of hope amid my anxiety, COREASSETINC did the unimaginable tracing down my lost investment funds to the scammers and were able to retrieve back everything I lost which I thought wasn't possible getting back again. It is with utmost Joy and happiness that I write down my testimony of experiencing the perfect experts in retrieving back lost funds, I am mandating and recommending them for any victim of online fraud seeking retrieval for their exceptional recovery service. Indeed, it is an indelible experience that I will live with forever, you can also reach out to them on through their Email: COREASSETINC @ GMAIL.COM.
howlesbonnied4a6bbeeda554550
Jul 25, 2024Our Quest for money have taken us down so many paths and investing is one of them,what I wasn’t Prepared for is a Fraudulent Investment. Till date it’s only right to give my gratitude to VALOR HACK RECOVERY TEAM for doing what’s needed to Recover my lost investment. In today’s time and age, money is very important in order to survive.By this, it must be protected/invtested properly and it must be handled intelligently at all costs. Hence, many people run into different kinds of approaches to convey fraud and monkey business to deceive other people, more specifically in terms of investment where money is hugely involved. This deceitful act targets people who are new to this kind of negotiation and people who are not knowledgeable enough about the different terms and conditions of a Cryptocurrency Investment or Investing Online. VALOR HACK RECOVERY TEAM is truly a life saver, a remarkable team standing for excellence, integrity and innovation on behalf of clients. Introduced to me by our Intern down at IBM, didn’t take me long to realize that VALOR TEAM is different & definitely not one of the bad guys,their mission remains the same: To provide sophisticated and differentiated advice and investment solutions, custom-tailored for clients.VALOR TEAM played a big role identifying the complex money laundering technologies and websites of these scammers clearly uncovering the hidden relationship among the transactions. Make a stand with VALOR TEAM today, to ensure complete transparency & alleviate Regulatory scrutiny.Learn more about VALOR HACK RECOVERY TEAM and Asset Recovery below when you contact VALOR TEAM; * Email: valorhaq at gmail dotcom * Telegram: Valorhaq_HQ
martzmichelle153dec949915ee44332
Jul 26, 2024Hi, my name is Michelle Martz. My credit was deeply in mess. I saw a few people praising PINNACLE CREDIT SPECIALIST as the credit doctor. So, I got in touch with him and hint me some details which increased my credit score by 215 points within 6 days. I also had some late mortgage payments, medical bills, one late credit card payment and some inquiries which have been wiped out. Hit him up by email: PINNACLECREDITSPECIALIST@GMAIL.COM OR +1 (409) 231-0041. DON’T FAIL TO LET HIM KNOW I REFERRED YOU.
lylalyndonsmith50c267b2f63d43fb
Jul 26, 2024Realtime Credit Score Repair Fix! It's my obligation to give a shout out to thecybergoat credit repair professionals. I needed to have my score increased fast and in about a week, these guys really had pulled it off and had it in the 750s range across the bureaus. I can't thank thecybergoat(@)techie enough for helping out. I was now in a better positon to secure the mortgage loan I had been seeking for a while. Whatsapp or reach them on contact(@)cybergoattechie_ com and +1512 299-1522. These guys are pros for sure!
jasegagnon421fa5f1aee51547b5
Jul 26, 2024My journey in retrieving back my lost crypto funds 390,000 pounds is the best story of my life and I owe it only to COREASSETINC RECOVERY FIRM (COREASSETINC @ GMAIL.COM/Telegram ID: @ COREASSETINC) and their amazing expert hackers at the firm, choosing them to assist with their service in my case has been the best decision of my life and they kept to their promise from our first contact that my funds will be retrieved. If faced with similar situation, COREASSETINC capabilities in handling delicate scam cases with their extensive knowledge of the crypto landscape is unique, and don't hesitate to contact them for their exceptional recovery service.
elliotpalmer407cad07c65b2be4a7e
Jul 26, 2024I found a reason to be happy again with DARKRECOVERYHACKS RECOVERY FIRM (DARKRECOVERYHACKS @ Gmail dot com/ Telegram ID: @ DARKRECOVERYHACKS) retrieving back my lost investment funds which was stuck up in an investment platform for months inaccessible, I started with little funds and was able to make my withdrawals which before I could know what was happening, I had already put in $470,000 worth of cryptocurrency watched my profits grow each passing day with the platform but going forward I decided to make more withdrawal which the platform declined. It became more shocking to me when it got to one month and I couldn't still process the withdrawal with the investment platform even after reaching out to their customer support to rectify the issue, all my messages from that moment wasn't answered with my plea to get back my investment funds, it was from that moment that it became clear to me I have been scammed. I was betrayed and lost everything I had on me to a sophisticated fraudulent scheme laid out by scammers to exploit trust and deceive unsuspecting investors of their hard earned funds, it even got to the point where I couldn't take care of my daily needs and wants which left me with so many debts I couldn't afford to pay. DARKRECOVERYHACKS are the ones I reached out to assist with their recovery expertise in my case, they retrieved back my lost investment funds clearing any doubts I had during the recovery process and providing me with every minute update on the progress made with the recovery. DARKRECOVERYHACKS are a rare gem with their expertise in recovering back lost investment funds unmatched, their trajectory in delivering excellent results for their clients is amazing with years of valuable hacking experience under their belts. I wasn't sure that they would retrieve back my lost investment funds on contacting but to my utmost surprise it was possible getting back everything I had lost exactly 72hrs working with them on my case, they amazingly did the unimaginable, tracing down my lost funds and recovering back everything I had thought wasn't possible again.