Elasticity of demand

Elasticity of demand is the responsiveness of the quantity demanded of a commodity to changes in one of the variables on which demand depends. In other words, it is the percentage change in quantity demanded divided by the percentage in one of the variables on which demand depends.”
The variables on which demand can depend on are:
  • Price of the commodity
  • Prices of related commodities
  • Consumer’s income, etc.
Let’s look at some examples:
  1. The price of a radio falls from Rs. 500 to Rs. 400 per unit. As a result, the demand increases from 100 to 150 units.
  2. Due to government subsidy, the price of wheat falls from Rs. 10/kg to Rs. 9/kg. Due to this, the demand increases from 500 kilograms to 520 kilograms.
In both cases above, you can notice that as the price decreases, the demand increases. Hence, the demand for radios and wheat responds to price changes.

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