ELASTICITY OF DEMANDMEASUREMENT

AND ITS

IMPLICATIONS

PRESENTED BY:KARISHMA SIROHI(21)ARUN SINGLA(22)KIRANJOT(23)

ELASTICITY OF DEMAND

Elasticity of demand measures the degree of change in demand of a commodity in response to a change of the commodity, or change in the income of the consumer or change in the price of related goods.

TYPES OF ELASTICITY OF DEMAND

ELASTICITY OF DEMAND

PRICE ELASTICITY

INCOME ELASTICITY

CROSS ELASTICITY

DEGREES OF PRICE ELASTICITY

• PERFECTLY ELASTIC• PERFECTLY INELASTIC• UNITARY ELASTIC• MORE ELASTIC• LESS ELASTIC

PRICE ELASTICITY

METHODS OF PRICE ELASTICITYMETHODS

TOTAL EXPENDITURE

PERCENTAGE METHOD

GRAPHICAL METHOD

POINT METHOD

ARC METHOD

REVENUE METHOD

PRICE ELASTICITY OF DEMAND

Acc. to Professor Lipsey, “price elasticity of demand may be defined as the ratio of the percentage change in demand to the percentage change in the price.” formula will be:

PE = % change in quantity demand / % change in Price

2. Percentage Method

This method was propounded by Dr. Flux, hence it is also known as Flux’s Method. It measures the elasticity of demand by using mathematics. Formula will be:

PE= ×

1. TOTAL EXPENDITURE METHOD

This method of measuring elasticity of demand was evolved by Dr. Marshall. This is also known as the Unity Method. According to this method, there can be three measures:1. Greater than Unity; E>12. Equal to Unity; E=13. Less than Unity; E<1

3.2 ARC METHOD

Arc method is useful when the changes in price and demand are very large. In this method we make use of mid point, between the old and new figures in the case of both price and demand. The formula will be:

PE= ÷

3. GRAPHICAL METHOD3.1 POINT METHOD

This method was found by Dr. Marshall is used to find out the elasticity of demand at a particular point on a demand curve. The formula will be:

E= Lower sector of demand curve/ upper sector of the curveIf,

1. Lower sector>upper sector; E>12. Lower sector= upper sector; E=13. Lower sector<upper sector; E<1

Factor affection price elasticity1. Nature of the commodity2. Substitute3. Variety of uses4. Range of prices5. Habits6. Proportion of the income spend on the commodity7. Time factor8. Joint demand9. Durability of goods10.Budget position11.Fashion12.Classes of buyers

4. REVENUE METHODPrice elasticity of demand can also be measured with the help of average and marginal revenue with using the following formula:

E=A/A-M

A= average revenueM= marginal revenue

TYPES OF INCOME ELASTICITY

INCOME ELASTICITY

POSITIVE

NEGATIVE

ZERO

INCOME ELASTICITY OF DEMAND

Income elasticity of demand is the rate at which quantity bought changes, as a result of change in the income of the consumer, other things being equal. It can be defined as:

Py= ×

DEGREES OF PRICE ELASTICITY

INCOME ELASTICITY• EY=1• EY>1• EY<1

CROSS ELASTICITY OF DEMAND

The cross elasticity is the measure of responsiveness of demand for a commodity to the changes in the price of its substitutes and complementary goods. The formula will be:

Ec= ×

TYPES OF CROSS ELASTICITY

EcPOSITIVE

NEGATIVE

ZERO

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