elasticityofdemand-ppt-100117041420-phpapp02-converted.pptx

Presentation
On
E
L
A
S
T
I
C
I
T
Y
OF
DEMAN

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

Kinds Of Price Elasticity Of Demand
1) Perfectly elastic demand
2) 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

Perfectly elastic demand
P
R
I
C
E
y
0
Perfectly elastic
demand 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
x

Relatively elastic
demand
Relatively elastic
demand curve
P
R
I
C
E
demand
0 x
y
D
D
When the
proportionate
change in
demand is
more than the
proportionate
changes in
price, it is
known as
relatively elastic
demand.

Elasticity of demand equal to utility
Elasticity of
demand equal
to utility
curve
y
x
0 demand
P
R
I
C
E
D
D
When the
proportionat
e change in
demand is equal
to
proportionate
changes in
price, it is
known as
unitary elastic
demand

Relatively inelastic
demand
Relatively inelastic
demand curve
X
O
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

Perfectly inelastic
demand
demand
D
Perfectly inelastic
demand curve
0
Y
D
X
P
R
I
C
E
When a change in
price, howsover
large, change no
changes in quality
demand, it is
known as perfectly
inelastic demand

ALLKINDS OFDEMAND CAN BE SHOWN
IN ONE DIAGRAM AS FOLLOW
D
D
2
D
3
D
4
Y
X
0 D5
DEMAN
D
P
R
I
C
E
WHERE
D1) Perfectly
elastic
deman
d
D1D2)Relatively elastic
demand
D3)Elasticity of
demand equal to
utility
D4)Relatively inelastic
demand
D5)Perfectly
inelastic demand

(5) Factors Affecting Price Elasticity Of
Demand

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

Factors Affecting Price Elasticity Of
Demand
• Income Groups
• Elements of time
• Pattern of income
distribution

(6) Practical Importance of the
Concept of Price Elasticity Of
Demand

Practical Importance of the Concept
of Price Elasticity Of Demand
• The concept is helpful in taking
Business Decisions
• Importance of the concept in formatting
T
ax Policy of the government
• For determining the rewards of the Factors
of Production
• T
o determine the Terms of Trades Between
the Two Countries

Practical Importance of the Concept
of Price Elasticity Of Demand
• Determination of Rates of Foreign
Exchange
• For Nationalization of Certain Industries
• In economic Analysis ,the concept of price
elasticity of demand helps in explaining
the irony of poverty in the midst of
plenty.

(7) Income Elasticity Of
Demand

Types Of Income Elasticity Of Demand
• Positive Income elasticity of demand
• Negative Income elasticity of
demand
• Zero Income elasticity of demand

PositiveIncome elasticity of demand
Y
D
P
A
D
O X
B
Incom
e

PositiveIncome elasticity of demand
• Income Elasticity Equal to Unity or One
• Income Elasticity Greater Than Unity
Or One
• Income Elasticity Less Than Unity or
One

NegativeIncome elasticity of demand
Price
P
A
Total Revenue
B
S
Quantity Demanded (000s)

Zero Income elasticity of demand
Y
X
O
D
D
Quantity Demanded
Incom
e

All Income Graphs Representation
O
Y
Incom
e
B
A
C
D
E
F
X
Quantity

Measurement Of Income Elasticity Of
Demand
Proportionate change in
Demand
Income Elasticity Of Demand =
Proportionate change in Income
i.e.
Income Elasticity Of Demand
= Q
Y
∆q ∆
y +

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

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 Y
∆q ∆
y +

Factors Affecting Income Of Demand
• Income Itself Only.
• Price Of the
Commodity

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

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.

Cross Elasticity of Demand
• Cross elasticity of demand express a
relationship between the change in the
demand for a given product in response to
a change in the price of some other
product
• E.g. if the Xtea demand reduces
tremendously than it effect could be seen
in demand of sugar and milk.

Types of Cross Elasticity of Demand
• Cross Elasticity of Demand Equal to Unity
or One
• Cross Elasticity of Demand Greater than
Unity or one
• Cross Elasticity of demand less than unity
or one

Measurement Cross Elasticity of
Demand
Proportionate change in Price
of product Y
i.e
.
∆q
x
Q
x
P
y
∆p
y
+
Proportionate change in
Demand
for product X
Cross Elasticity of Demand =
Cross Elasticity of Demand
=

Price
of
Y
Demand for
O
Y
X
Cross Elasticity of Demand For
Substitutes
D
D

Price
of
Y
O
Y
X
D
Cross Elasticity of Demand For
Complementary Products
D
Demand for

Cross Elasticity of Demand For Neutral
Price
of
Y
O
Y
X
Product
s
D
Demand for

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

elasticityofdemand-ppt-100117041420-phpapp02-converted.pptx

More Related Content

Similar to elasticityofdemand-ppt-100117041420-phpapp02-converted.pptx (20)

Recently uploaded (20)

elasticityofdemand-ppt-100117041420-phpapp02-converted.pptx