According to Marshall, “The elasticity of demand in a market is great or small according as the amount demanded increases much of little for a given fall in price or diminishes much or little for a given rise in price.”
‘Elasticity of demand may be defined as the percentage change in the quantity demanded of a commodity divided by the percentage change in price of the commodity’
It is measured by the following methods –
1. Proportionate or Percentage method – According to this method, for calculating the elasticity of demand, proportionate or percentage change in demand is divided by proportionate or percentage change in price.
2. Geometric point method – To calculate elasticity of demand at any point on the demand curve, a tangent on that point is drawn.
In fig., a tangent AB has been drawn. RB is lower segment and RA is upper segment.
3. Total Expenditure method – In this method, amount of change and direction of change in total expenditure are determined as a result of change in price of commodity.
Total Expenditure = Commodity Price x Commodity demand.