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    Elasticity of Demand: DR Shalini Trivedi

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    Anu Agnihotri
    1) The document discusses the concept of elasticity of demand, including definitions of price elasticity, cross elasticity, and income elasticity. 2) It identifies key determinants of price elasticity as availability of substitutes, passage of time, necessities vs luxuries, market definition, and good's share of consumer budget. 3) Elasticity measures are important for businesses to determine optimal pricing, output levels, and forecasting demand.

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    Elasticity of Demand: DR Shalini Trivedi

    Uploaded by

    Anu Agnihotri
    37 views22 pages
    1) The document discusses the concept of elasticity of demand, including definitions of price elasticity, cross elasticity, and income elasticity. 2) It identifies key determinants of price elasticity as availability of substitutes, passage of time, necessities vs luxuries, market definition, and good's share of consumer budget. 3) Elasticity measures are important for businesses to determine optimal pricing, output levels, and forecasting demand.

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    7d99bElasticity of Demand

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    1) The document discusses the concept of elasticity of demand, including definitions of price elasticity, cross elasticity, and income elasticity. 2) It identifies key determinants of price elasticity as availability of substitutes, passage of time, necessities vs luxuries, market definition, and good's share of consumer budget. 3) Elasticity measures are important for businesses to determine optimal pricing, output levels, and forecasting demand.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    37 views22 pages

    Elasticity of Demand: DR Shalini Trivedi

    Uploaded by

    Anu Agnihotri
    1) The document discusses the concept of elasticity of demand, including definitions of price elasticity, cross elasticity, and income elasticity. 2) It identifies key determinants of price elasticity as availability of substitutes, passage of time, necessities vs luxuries, market definition, and good's share of consumer budget. 3) Elasticity measures are important for businesses to determine optimal pricing, output levels, and forecasting demand.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 22

    Name of Institution

    Elasticity of Demand
    Dr Shalini Trivedi

    Name of Institution

    Learning Objectives

    Understand the meaning of elasticity of demand Quantify the elasticity of demand Interpret the co-efficient of elasticity Determinants of elasticity of demand

    Why Study Elasticity?


    Name of Institution

    Determinants of Demand Directional impact Magnitude of impact Quantitative value for responsiveness

    Definition

    Name of Institution

    Elasticity of demand is defined as the percentage change in quantity demanded caused by one percent change in the demand determinant under consideration, with other determinant held constant. Ed= percentage change in quantity demanded of good X percentage change in determinant Z Symbolically

    Q Q

    Z Z

    Q Z Z Q

    Point and Arc Elasticity

    Name of Institution

    PE-Particular point on the demand curve AE- Average elasticity over a segment of the demand curve. Q Z PE is
    Z Q

    For a demand function Q= 10-3P, the elasticity for P=2, will be ??????????????

    Arc Elasticity

    Name of Institution

    Coordinates of mid point are taken for arc elasticity, which would P1+P2/2, Q1+Q2/2
    Q P E Q Q P P 2 2 Q PP E Q Q P
    1 2 1 1 2 1 2

    Q P P E P Q Q
    1 1

    Price Elasticity of Demand

    Name of Institution

    Measure of relative responsiveness of quantity demanded to a price along a given demand curve. = proportionate change in quantity demanded of good X / proportionate change in the price of good X

    (Q Q ) / Q P P
    2 1 2 1 1

    Q / Q P / P
    1

    Q P P Q

    Problem

    Name of Institution

    At a DD demand curve of a consumer for a good X, @ P=10, 4 units of X are demanded. When price goes down to Rs 8 the quantity demanded increases to 6. So elasticity would be????????????/

    Name of Institution

    The Price Elasticity of Demand and Its Measurement


    The Price Elasticity of Demand

    Name of Institution

    The Price Elasticity of Demand and Its Measurement


    The Price Elasticity of Demand

    Measurement of Price Elasticity Name of Institution of Demand

    Percentage Measure Graphical Mathematical method Total Outlay method

    Name of Institution

    The Relationship Between Price Elasticity and Total Revenue

    Elasticity and Revenue with a Linear Demand Curve


    IF DEMAND IS . . . THEN . . .
    elastic an increase in price reduces revenue a decrease in price increases revenue an increase in price increases revenue

    BECAUSE . . .
    the decrease in quantity demanded is proportionally greater than the increase in price. the increase in quantity demanded is proportionally greater than the decrease in price. the decrease in quantity demanded is proportionally smaller than the increase in price.

    elastic
    inelastic inelastic unit-elastic unit-elastic

    a decrease in price reduces revenue


    an increase in price does not affect revenue a decrease in price does not affect revenue

    the increase in quantity demanded is proportionally smaller than the decrease in price.
    the decrease in quantity demanded is proportionally the same as the increase in price. the increase in quantity demanded is proportionally the same as the decrease in price.

    2 LEARNING OBJECTIVE

    Name of Institution

    What Determines the Price Elasticity of Demand for a Product? The key determinants of price elasticity of demand are as follows: Availability of close substitutes Passage of time Necessities versus luxuries Definition of the market Share of good in the consumers budget Habit forming characteristics

    Name of Institution

    Cross elasticity of demand The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

    Summary of Cross Elasticity of Demand

    IF THE PRODUCTS ARE ...


    Substitutes

    THEN THE CROSS ELASTICITY OF DEMAND WILL BE . . .


    Positive

    EXAMPLE Two brands of printers

    Complements

    Negative

    Printers and toner cartridges Printers and peanut butter

    Unrelated

    Zero

    Name of Institution

    The price of Coffee increases from Rs 50 to Rs 70 per kg, as a result the demand for tea increases from 5 Kg to 10 Kg. What is the cross elasticity of tea for coffee?

    Name of Institution

    Income elasticity of demand A measure of the responsiveness of quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in price.

    Summary of Income Elasticity of Demand

    IF THE INCOME ELASTICITY OF DEMAND IS . . . Positive, but less than 1 Positive and greater than 1 Negative

    EXAMPLE THEN THE GOOD IS . . . Normal and a necessity Normal and a luxury Inferior Milk Caviar High-fat meat

    Income Elasticity

    Name of Institution

    1. Types of Income Elasticity a) High Income Elasticity b) Unitary Income Elasticity c) Low Income Elasticity d) Zero Income Elasticity e) Negative income Elasticity 2. Relation between Income Elasticity of Goods Kx exi+Kyeyi = 1 3. A consumer spends his entire budget on food and housing. If food accounts for 65% of his budget and has income elasticity of 0.4, find income elasticity of Housing.

    Name of Institution

    Uses of Concept of Income Elasticity 1. Planning for firms growth 2. Forecasting Demand 3. Formulating marketing strategy

    Advertising Elasticity of Demand

    Name of Institution

    Q A A Q
    A

    (Q 2 Q1)( A2 A1) (Q 2 Q1)( A2 A1)


    A

    Factors affecting advertisement Elasticity

    Name of Institution

    Stage of product market Effect of advertising in term of time Influence of advertising by rivals

    Importance of the Concept of Elasticity of Demand

    Name of Institution

    1. 2. 3. 4.

    Level of output and price Fixation of rewards for factor of production Government Policies Demand Forecasting

    Name of Institution

    Assignment Elasticity of Demand and Managerial Decision making

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