The Elasticity of Demand measures the percentage change in quantity demanded for a percentage change in the price. Simply, the relative change in demand for a commodity as a result of a relative change in its price is called as the elasticity of demand.
Price Elasticity of Demand
The price elasticity of demand, commonly known as the elasticity of demand refers to the responsiveness and sensitiveness of demand for a product to the changes in its price. In other words, the price elasticity of demand is equal to
ΔQ = Q1 –Q0, ΔP = P1 – P0, Q1= New quantity, Q2= Original quantity, P1 = New price, P0 = Original priceThe following are the main Types of Price Elasticity of Demand:
- Perfectly Elastic Demand
- Perfectly Inelastic Demand
- Relatively Elastic Demand
- Relatively Inelastic Demand
- Unitary Elastic Demand
Income Elasticity of Demand
The responsiveness of quantity demanded to changes in income is called income elasticity of demand. With income elasticity, consumer incomes vary while tastes, the commodity’s own price, and the other prices are held constant.
Cross Elasticity of Demand
Demand is also influenced by prices of other goods and services. The cross elasticity measures the responsiveness of quantity demanded to changes in price of other goods and services. Cross elasticity of demand is defined as the percentage change in quantity demanded of one good caused by a 1 percentage change in the price of some other good.
Advertisement or Promotional Elasticity of Sales
The advertisement expenditure helps in promoting sales. The impact of advertisement on sales is not uniform at all level of total sales. The concept of advertising elasticity is significant in determining the optimum level of advertisement outlay particularly in view of competitive advertising by rival firms. An advertising elasticity could be defined as the percentage change in quantity demanded for a percentage change in advertising. Advertising might be measured by expenditure.