What is price elasticity of demand?

A measure of how much the quantity demanded changes in response to a change in price.

Elasticity

noun (uncountable in general; countable for specific measures)

/ɪˌlæsˈtɪsɪti/

A measure of the responsiveness of one economic variable to a proportionate change in another, expressed as a percentage change in the dependent variable divided by the percentage change in the independent variable. Price elasticity of demand (PED) measures how sensitively consumers respond to price changes; income elasticity of demand indicates how demand changes with income. Essential commodities like wheat and rice tend to have low (inelastic) price elasticity, while luxury goods are elastic. In Indian fiscal policy, the revenue elasticity of GST — how tax revenues respond to GDP growth — is a critical parameter for deficit projections.

✍️ Usage in a UPSC answer

Petrol and diesel demand in India exhibits low price elasticity in the short run — a fuel price increase of 10% reduces consumption by less than 2% — justifying the government's use of excise duties as a reliable, recession-resistant revenue instrument.

Synonyms

responsivenesssensitivityflexibilityprice-sensitivitydemand responsiveness

Antonyms

inelasticityrigidityprice insensitivityfixed demand

🌱 Word Family

elastic (adjective), inelastic (adjective), elasticate (verb), inelasticity (noun), price-elastic (adjective)

🔡 Root

Greek elastikos = driving, ductile, from elaunein = to drive, stretch; -ity = quality suffix

📜 Etymology

From Greek elastikos (ductile, resilient), derived from elaunein (to drive, beat out metal). The physical term 'elasticity' entered economics through Alfred Marshall's Principles of Economics (1890), who introduced price elasticity of demand as a formal concept to describe the 'spring' of demand in response to price movement.

🧠 Memory Hook

ELASTIC-ity — an ELASTIC BAND stretches easily when pulled. Elastic demand STRETCHES a lot when price changes (big response). Inelastic demand is a STIFF rubber band that barely stretches.

🎯 How This Word Works in UPSC Writing

The responsiveness of one variable to a change in another, most commonly of quantity demanded to a change in price. It is directly useful in GS3 policy analysis because it determines who bears a tax: where demand is inelastic, as with essential goods and fuel, most of a tax is passed to consumers and revenue is stable, whereas elastic demand shifts the burden onto producers and makes revenue volatile.

⚖️ Don’t Confuse It With

Price elasticity of demand measures response to price. Income elasticity measures response to income, and distinguishes normal from inferior goods. Cross elasticity measures response to the price of another good, identifying substitutes and complements. Inelastic means proportionally less responsive, not entirely unresponsive.

🇮🇳 Hindi Meaning

लोच (loch); मांग की लोच is elasticity of demand.

❓ Common Questions

What is price elasticity of demand?: A measure of how much the quantity demanded changes in response to a change in price.
Why does elasticity matter for taxation?: Because where demand is inelastic most of a tax is passed on to consumers and revenue is stable, whereas elastic demand shifts the burden to producers and makes revenue less predictable.

💰 Indian Economy 📖 Seen in: Indian Economy — Growth, Planning & De...

Relevant across:GS3 · Economy, Environment, S&T & Security

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