Explain the types of elasticity of demand?

There are three types of elasticity of demand.

            (i) Price elasticity.

            (ii) Income elasticity.

            (iii) Cross elasticity.

(i) Price elasticity: Price elasticity measures responsiveness of potential buyers to changes in price. It is the ratio of percentage change in quantity demanded in response to a percentage change in price.

 The concept of price elasticity can be used in comparing the sensitivity of the different types of goods  (e.g luxuries and necessaries) to change in their prices.

(ii) Income Elasticity: Income elasticity is a measure of responsiveness of potential buyers to change in income. It indicates how the quantity demanded will change when the income of the purchaser changes, the price of the commodity remaining the same.

It may be defined thus:

The income elasticity of demand of demand for a good is the ratio of the percentage change in the amount spent on the commodity to a percentage change in the consumer’s income, price of commodity remaining constant. Thus,

While prices remain constant.

(iii) Cross elasticity: The cross elasticity of demand measures to the percentage change in the quantity demanded of a particular commodity in response to a change in price, not of the same commodity but another related commodity.

The cross elasticity of demand can be measured by using the following formula.