Elasticity of Demand Class 11 Notes

The elasticity of demand refers to the percentage change in demand for a commodity concerning the percentage change in any of the factors affecting demand for that commodity. Here are the elasticity of demand class 11 notes.

Ed = % Change in Demand/% Change in factors affecting Demand

Types of Elasticity of Demand

There are 3 dimensions of elasticity of demand:

1. Price Elasticity of Demand: It refers to the percentage change in demand for a commodity concerning the percentage change in the price of the given commodity.
2. Cross Elasticity of Demand: It refers to the percentage change in demand for a commodity concerning the percentage change in price of a related good.
3. Income Elasticity of Demand: This refers to the percentage change in demand for a commodity concerning the percentage change in the income of a consumer.

Degrees of Elasticities of Demand

1) Perfectly Elastic Demand

When there is an infinite demand at a particular price & demand becomes zero with a slight rise in the price, then demand for such a commodity is said to be perfectly elastic. (Ed=infinite)

2) Perfectly Inelastic Demand

When there is no change in demand with the price change, then demand for such a commodity is said to be perfectly elastic. (Ed=0)

3) Highly Elastic Demand

When the percentage change in the quantity demanded is more than the percentage change in price, then demand for such a commodity is said to be highly elastic. (Ed is more than 1)

4) Less Elastic Demand

When the percentage change in quantity demanded is less than the percentage change in price, then demand for such a commodity is said to be less elastic or inelastic. (Ed is less than 1)

5) Unitary Elastic Demand

When the percentage change in the quantity demanded is equal to the percentage change in price, then demand for such a commodity is said to be unitary elastic. (Ed=1)

Consumer Equilibrium Class 11 Notes

Factors Affecting Price Elasticities of Demand

• Nature of Commodity: The elasticity of a commodity is influenced by its nature. A commodity for a person may be a necessity, a comfort, or a luxury.
  When a commodity is a comfort like a fan, refrigerator, etc. its demand is generally elastic as the consumer can postpone its consumption.
  When a commodity is a luxury like AC, DVD player, etc. its demand is generally more elastic as compared to the demand for comforts.
• Availability of Substitutes: Demand for a commodity with a large number of substitutes will be more elastic. The reason is that even a small rise in its price will induce the buyers to go for its substitute.
• Income Level: Ed for any commodity is generally less for higher income level groups in comparison to people with low incomes. It happens because rich people are not influenced much by changes in the price of goods. As a result, demand for lower-income groups is highly elastic.
• Level of Price: The level of price also affects the price elasticity of demand. Costly goods like laptops, ACs, etc have highly elastic demand as their demand is very sensitive to changes in their prices. However demand for inexpensive goods like needles, match box, etc is inelastic as changes in the price of such goods do not change their demand by a considerable amount.
• Habits: Commodities that have become habitual necessities for consumers have less elastic demand. It happens because such a commodity becomes a necessity for the consumer & he continues to purchase it even if its price rises.

Formulas

1) Ed= % change in Demand/% change in Price

2) Ed= delta Q/delta P * P/Q

3) % change in Qd= Delta Q/Q * 100

4) % change in P= Delta P/P * 100

Here, Q1= New Quantity
Q= Old Quantity
P1= New Price
P= Old Price
Delta Q= Change in Quantity Demanded
Delta P= Change in Price