Scribd Logo
Upload

Welcome to Scribd!

  • 47 views

    Economics

    Uploaded by

    Vishal Gattani

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Economics

    Uploaded by

    Vishal Gattani
    47 views10 pages

    Original Title

    economics

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    47 views10 pages

    Economics

    Uploaded by

    Vishal Gattani

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    Economics Lecture 4

    Elasticity of Demands Balanced Sheets Ph : +91 9462550350 www.balancedsheets.co.in

    Elasticity of demand
    Change in quantity demanded with change in one of the determinants. Most common elasticity is Elasticity of Demand against price change of the commodity. Other elasticity
    Elasticity to Income Elasticity to Substitutes price change Elasticity to Complements price change etc.

    Determinants of Price elasticity


    How elastic or inelastic is the demand of a commodity depends largely on below mentioned Determinants
    1. 2. 3. 4. 5. 6. 7. Availability of substitutes Position of commodity in consumers budget Nature of need (Luxury or necessities) Number of uses: more uses more elasticity Period of adjustment. (Long Term or short term elasticity) Consumer habit Tied demand : Those goods which are tied to other goods is more inelastic (Like : Cones with Ice Cream)

    Price Elasticity of Demand


    Computation or Price Elasticity of Demand The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.
    % Change in Qty. Demanded Pr ice Elasticity of Demand ! % Change in Price

    Eg. : If the price of Bread increase from Rs. 20 to Rs. 25 and the qty. demanded falls from 20 packets to 16 Packets then elasticity of demand will be.  16 . 20 20 % 20 ! ! 25  20 . 25 25 % ! . 8 20

    20

    Types of elasticity
    Based on quantum of Elasticity
    Zero- no change( Perfectly inelastic)
    Any price change will not effect the quantity demanded. Eg. Medicines

    Greater than zero but less than one


    Quantity Demanded will change with lesser percentage then Price movement

    One ( unitary elastic)


    Change in quantity demanded will be exactly equal to % change in price

    Greater than one but less than infinity


    Quantity demanded will change with higher percentage then price change

    Infinity ( perfectly elastic)


    Any price change will result in 0 demand

    Types of elasticity
    Zero Elasticity (Perfect Inelastic Demand)
    Price Demand 5 4 1. An increase in price . . .

    100

    Quantity

    2. . . . leaves the quantity demanded unchanged.

    Types of elasticity
    Elasticity (0-1) (Inelastic Demand)
    Price

    5 4 1. A 25% increase in price . . . Demand

    90

    100

    Quantity

    2. . . . leads to an 10% decrease in quantity demanded.

    Types of elasticity
    Unit Elasticity (Elasticity Equals to 1 )
    Price

    5 4 1. A 25% increase in price . . . Demand

    75

    100

    Quantity

    2. . . . leads to a 25% decrease in quantity demanded.

    Types of elasticity
    Elasticity (>1) (Elastic Demand)
    Price

    5 4 1. A 25% increase in price . . . Demand

    50

    100

    Quantity

    2. . . . leads to a 50% decrease in quantity demanded.

    Types of elasticity
    Infinite Elasticity (Perfectly Elastic Demand)
    Price 1. At any price above 4, quantity demanded is zero. 4 2. At exactly 4, consumers will buy any quantity. Demand

    0 3. At a price below 4, quantity demanded is infinite.

    Quantity

    You might also like