The basic knowledge of elasticity of demand

1. In economics, the demand elasticity (elasticity of demand) refers to how
sensitive the demand for a good is to changes in other economic
variables, such as prices and consumer income. Demand elasticity is
calculated as the percent change in the quantity demanded divided by a
percent change in another economic variable. A higher demand
elasticity for an economic variable means that consumers are more
responsive to changes in this variable.

2. Types of Elasticity of demand
Income Elasticity
Price Elasticity
Gross Elasticity

3. Income Elasticity
Income Elasticity of demand
means ration of the percentage
change in the quantity demand to
percentage change in income.
Income is directly proportional to
demand

4. Kinds of Income elasticity of
demand
Positive Income Elasticity of
Demand
Negative Income Elasticity of
Demand
Zero Income Elasticity Of Demand

5. Formulation of Income Elasticity of
demand
Income Elasticity =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑒𝑛𝑎𝑔𝑒 𝑖𝑛 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒
Income Elasticity=
Δ𝑄
Δ𝑀
Where, ∆Q is Percentage change is purchase of goods
∆M is Percentage change in income

6. Positive Income Elasticity of
demand
When the amount demanded of a commodity increases
with increases in income of the consumer and decreases
with decrease in income, the income elasticity of
demand is Positive.
Income Increases Demand Increases

7. Negative income elasticity of
demand
 When amount demanded of a commodity diminishes
with an increase in the income of the consumer and
increases with a fall in income, the income elasticity
of demand is said to be negative.
Income Increases Demand Decreases

8. Zero Income Elasticity of
Demand
 When the demand for a commodity does not respond
to change in income of the consumer the income
elasticity of demand is zero.
 Income Increases or decreases , Demand will be
constant .

9. Importance Of Income Elasticity in
business Firms
 It helps for decision making for both firms and
industries
 Helps to for caste the demand
 Helps to control the supply
 Helps in price control
 Helps to control the production