Elasticity of Demand Ppt 100117041420 Phpapp02

8/2/2019 Elasticity of Demand Ppt 100117041420 Phpapp02

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PresentationOn

ELASTICITY

OF

DEMAND


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Definition Of Price Elasticity Of Demand

The change in the quantity demanded of a

product due to a change in its price is known

as Price elasticity of demand. Thus, the

sensitiveness or responsiveness of demand to

change in price is as called elasticity of

demand


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Kinds Of Price Elasticity Of Demand

1) Perfectly elastic demand2) Relatively elastic demand

3) Elasticity of demand equal to utility

4) Relatively inelastic demand

5) Perfectly inelastic demand

Let Us See Some Views On Them


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Perfectly elastic demand

P

R

I

C

E

y

0 x

Perfectly elasticdemand curve

D D

When the

demand for a

product changes

increases or

decreases even

when there is no

change in price,it is known as

perfect elastic

demand.


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Relatively elastic demand

Relatively elasticdemand curve

P

R

IC

E

demand0 x

y

D

D

When the

proportionate

change in

demand is morethan the

proportionate

changes in

price, it isknown as

relatively elastic

demand.


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Elasticity of demand equal to utility

Elasticity ofdemand equalto utility curve

y

x0 demand

P

R

I

C

E

D

D

When the

proportionate

change indemand is equal

to proportionate

changes in price,

it is known asunitary elastic

demand


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Relatively inelastic demand

Relatively inelasticdemand curve

XO

Y

demand

D

D

P

R

I

C

E

When the

proportionate

change in demand

is less than the

proportionate

changes in price, it

is known as

relatively inelastic

demand


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Perfectly inelastic demand

demand

D

D

Perfectly inelasticdemand curve

0

Y

X

P

R

I

C

E

When a change in

price, howsover

large, change no

changes in qualitydemand, it is known

as perfectly inelastic

demand


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Measurement Of Price Elasticity Of

Demand

There are main methods like

1. Percentage method or proportionate

method2. Total outlay method or total revenue

method

3. Geometric method or point method4. Arc elasticity of demand


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(5) Factors Affecting Price Elasticity OfDemand


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Factors Affecting Price Elasticity Of

Demand

Nature of the Commodity

Availability of Substitutes

Variety of uses of commodity Postponement

Influence of habits

Proportion of Income spent on a commodity

Range of prices


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Factors Affecting Price Elasticity Of

Demand

Income Groups

Elements of time

Pattern of income distribution


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(6) Income Elasticity Of Demand


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Types Of Income Elasticity Of Demand

Positive Income elasticity of demand

Negative Income elasticity of demand

Zero Income elasticity of demand


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Positive Income elasticity of demandY

P

A

D

D

B SO XQuantity Demanded

Income


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Positive Income elasticity of demand

Income Elasticity Equal to Unity or One

Income Elasticity Greater Than Unity Or

One Income Elasticity Less Than Unity or One


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Negative Income elasticity of demand

Price

P

B

A

S

TotalRevenue

Quantity Demanded (000s)


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Zero Income elasticity of demandY

XO D

D

Quantity Demanded

Income


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Measurement Of Income Elasticity Of

Demand

Income Elasticity Of Demand =

Proportionate change in Demand

Proportionate change in Income

i.e.

Income Elasticity Of Demand =q

Q Y

y+


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Demand

Here , q = Change in the quantity demanded.

Q = Original quantity demanded.

y = Change in income.Y = Original income.

For e.g. ,when Income of the consumer =

2,500/- , he purchases 20 units of X, when

income = 3,000/- he purchases 25 units of X


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Demand

Thus

Income Elasticity of Demand

=

= (5/20) + (500/2500)

= 1.5

therefore here the IED is 1.5 which is more

than one.

q

Q Y

y

+


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Factors Affecting Income Of Demand

Income Itself Only.

Price Of the Commodity


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Importance Of the Concept of Income

Elasticity Of Demand

In production planning and management

In forecasting demand when change in

consumers income is expected In classifying goods as normal and inferior

In expansion and contraction of the firm by

the figure of income elasticity of demand

Markets situations could be studied with the

help of IED


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(8) Elasticity Of Substitution

The selection between two product or thing is

called substitution

So Elasticity of Substitution measures the rateat which the particular product is substituted .

Thus EOS is the degree to which one product

could be substituted in context of price andproportion


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Elasticity Of Substitution

Elasticity of Substitution

= Proportionate change in the quantity ratios

of goods x & y DIVIDED BY Proportionatechange in the price ratios of goods x & y.


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Types of Elasticity Of Substitution

Zero Elasticity of Substitution.

Infinite Elasticity Of Substitution

Elasticity of Substitution greater than unityor1 Elasticity of Substitution is equal to one

Elasticity of Substitution is less than one


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Price elasticity of demand depends on:

Proportion of income spent on particular good

say X.

Income elasticity of demand.

Elasticity of substitution.

Proportion of income spent on product other

than X.


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Cross Elasticity of Demand

Cross elasticity of demand express a

relationship between the change in the

demand for a given product in response to achange in the price of some other product

E.g. if the X tea demand reduces

tremendously than it effect could be seen indemand of sugar and milk.


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Types of Cross Elasticity of Demand

Cross Elasticity of Demand Equal to Unity or

One

Cross Elasticity of Demand Greater than Unityor one

Cross Elasticity of demand less than unity or

one

l f


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Measurement Cross Elasticity of

Demand

Proportionate change in Demand

for product X

Proportionate change in Price ofproduct Yi.e.

qx

Qx Py

p y

+

Cross Elasticity of Demand =

Cross Elasticity of Demand =


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Cross Elasticity of Demand For

Substitutes

Priceof

Y

Demand for Y

O

Y

X

D

D

l f d


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Cross Elasticity of Demand For

Complementary Products

Priceof

Y

O

Y

X

D

D

Demand for Y

C El ti it f D d F N t l


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Cross Elasticity of Demand For Neutral

Products

Priceof

Y

O

Y

X

D

Demand for Y

I t f C El ti it Of


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Importance of Cross Elasticity Of

Demand

The concept is of very great importance in

changing the price of the products having

substitutes and complementary goods .

In demand forecasting

Helps in measuring interdependence of price

of commodity . Multiproduct firms use these concept to

measure the effect of change in price of one

roduct on the demand of their other roduct


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Thanking You All


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******THE END******

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Elasticity of Demand Ppt 100117041420 Phpapp02