Elasticity of Demand

The concept of elasticity of demand is generally associated with the name of Alfred Marshall who had done much to develop it.

Law of Demand explains the direction of change in demand. A fall in price leads to an increase in quantity demanded and vice versa. But it does not tell us the rate at which demand changes to a change in price. Thus, the law of demand is only a qualitative statement and not a quantitative statement. Prof Marshall introduced the concept of elasticity of demand to measure the change in demand. Elasticity of demand is the measurement of the change in demand in response to a given change in the price of a commodity. It measures how much demand will change in response to a certain increase or decrease in the price of a commodity.

Meaning and Definitions of Elasticitylo

The elasticity of demand refers to a particular behavior of a. demand curve. It tells us something about how the quantity demanded responds to.changes in price, the degree to which the quantity demanded responds to a change in price, is known as the elasticity’ of demand.

The term Elasticity of Demand’ has been defined by many economists. Some of the important definitions ofelasticity of demand are as follows :

In the opinion of Boulding.”The percentage change in the demand of a commodity as a result of change’ to some percentage in the price of that commodity, is known as its elasticity (of demand)”.

According to Albert L Meyers. “The elasticity of demand is a measure of relative change in the amount purchased response to relative change in price ofa given demand curve.”

Prof. R. G. Lipsey has expressed that “Elasticity of demand may be defined as the ratio of the percentage change in the quantity demanded to the percentage change in price.”

Prof. S. K. Rudra, “Elasticity of demand is the capacIty of demand to change with least change in price.”

Thus, on the basis of analytical study of above defi- hons. it so that elasticity of demand is  thes demanded of a commodity changes in response to a given change price. It measures the Proportionate change in the quantity demanded of a commodity in response.

Factor Effecting Elasticity of

Whether the demand for a commodity will be elastic or inelastic will be determined by a variety of factors:

1. Degree of Necessity – The greater the degree of necessity, the more likely is the demand for commodity to be inelastic. Other things being equal the demand for necessi- ties is less elastic than the demand for comfort and luxuries.
The necessities must be bought whatever the price luxuries can be dispensed with. Hence, their demand is elastic.

2. Proportion of Consumer’s Income spent on the Commodity – The demand for a commodity on which the consumer spends only a small proportion of his income is less elastic. Even if the price of rises by 100 percent, the demand for salt is not likely to decline in an appreciable Manner.

3. Existence of substitutes – The demand for a commodity is more elastic if it has a number of good substitutes.

consumer to go in for its substitutes, assuming that their Such a commodity will induce the prices do not rise. Likewise, a small fall in its price will induce the consumer to buy this commodity other than its substitutes:

4. Habit-The demand for a commodity to which the consumer is accustomed is generally inelastic. For example, a person accustomed to smoke a particular brand of cigarette will not, in the short period, reduce his consumption if its price goes up.

5. Several Uses of the Commodity -The demand for a commodity is said to be more elastic when it can be put to a variety of uses. Electricity for example is a multiple use commodity. A fall in itsprice will result in a substantial increase in its demand, particularly, in those uses where it was not being employed formerly due to its high price.

6. Postponement – The demand for a commodity, the consumption of which can, be postponed, is more elastic than that of the commodity, the use of which cannot be put off. The demand for oranges is elastic while the demand for medicine is inelastic.

7. Time -The demand for a commodity always exists in some period of time. It can be a day, a week, a month, a year or a period of several years. Elasticity varies with the length of time periods. In general, demand is more elastic, the longer the period of time. The elasticity of demand in the short period is lower than in long period.

8. Range of prices – The elasticity of demand is influenced by the range of prices at, which the commodities are sold in the market. Since the commodity is being sold at very high price, its demand comes only from a small section of the rich people. A slight fall in 1ts price will not increase the demand of this small section.Likewise, the demand for a commodity will be inelastic if it is being sold at a very low price. The reason being that all those who wanted to buy that commodity are already doing SO and a further fall in price will not increase their, demand appreciably. Thus, at very high or very low prices demand is generally inelastic.

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