2024041f1 WA0018.

ELASTICITY OF DEMAND
Determinants of
Demand
Number of Buyers Prices of
Price
other
goods
Income Determinants of
Demand Quality
Expectations
about future Supply?
Tastes
Law of Demand
Meaning: Law of demand states that higher the price

lower the quantity demanded, and vice versa, other things
being constant.
Qdx = f ( p)
Elasticity of Demand
Most of the times , it is not enough to understand the

increase or decrease in price and its consequential impact of
change in the quantity demanded. It is necessary to find out
the extent of increase or decrease in each variables for taking
certain managerial decisions.
Definition : “ The percentage change in quantity demanded

caused by one percent change in the demand determinant
under consideration , while other determinants are held
constant.”
E= Percentage change in quantity demanded of good X
Percentage change in determinant Z
Symbolically it may be stated as
Types of Elasticity of Demand
Price Income
Elasticity Elasticity
of Demand
of Demand
Cross Advertising
Elasticity Elasticity of
of Demand Demand
Price Elasticity of Demand
Types of Price Elasticity
In fact, it is the nature of a commodity which is responsible

for differing elasticity's of demand in case of different
commodities.
1.Perfectly elastic Demand (e=∞) . Where no reduction in
price is needed to cause an increase in quantity demanded.
2. Absolutely inelastic demand : (e=0). Where a change in
price, however large, causes no change in quantity
demanded
3. Unit elasticity of demand (e=1):
Where a given proportionate change in quantity
demanded (in this case the demanded curves takes
the form a rectangular hyperbola).
4. Relatively elastic Demand (e>1)
Where a change in price causes a more than proportionate
change in quantity demanded.
5. Relatively inelastic Demand (e<1) :
Where a change in price causes a less than proportionate
change in quantity demanded.
Income Elasticity of Demand
Types of Income Elasticity:
High income elasticity: this is shown in figure. Here

the values of the coefficient E is greater than unity,
which implies that quantity demanded of good X
increases by a larger percentage than the income of
the consumer.
Unitary income elasticity: the figure shows an income-
demand curve having this property. It indicates that the
percentage change in quantity demand is equal to the
percentage change in money income.
Low income elasticity: Income elasticity is elasticity is low if
the relative change in quantity demanded is less than the
relative change in money income is shown in figure.
Zero income elasticity: Here, a change in income will
have no effect on the quantity demanded, like in case
of salt .so; the value of the coefficient is equal to zero
.such a demand curve is shown in figure.
Negative income elasticity: As pointed out above, inferior
goods have negative income elasticity of demand. This is
shown in figure it explains that less is bought at lower
incomes. The value of the coefficient is less than zero or
negative in this case.
CROSS ELASTICITY OF DEMAND:
Expectation elasticity of demand
There are two main ways expectations can influence

demand:
Price Expectations: This refers to how consumers
anticipate future price changes for a product.
● If consumers expect the price to rise in the future, they
might be more likely to purchase the good now,
increasing demand in the present. (Think of people
stocking up on bottled water before a hurricane.)
● Conversely, if consumers expect a price decrease in the
future, they might delay their purchase, decreasing
demand now. (For example, people might hold off on
buying a new phone if rumors suggest a new model is
coming out soon.)
2.Quality or Availability Expectations: This considers
how consumers' perceptions of a product's future
quality or availability can affect demand.
● If there's a positive expectation about a product's

future improvement (e.g., new features, better
performance), demand might increase in
anticipation. (Think of pre-orders for the latest tech
gadgets.)
● On the other hand, negative expectations about
future quality or availability (e.g., safety concerns,
potential shortages) could lead to a decrease in
demand.

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ELASTICITY OF DEMAND

Meaning: Law of demand states that higher the price

Most of the times , it is not enough to understand the

Definition : “ The percentage change in quantity demanded

In fact, it is the nature of a commodity which is responsible

High income elasticity: this is shown in figure. Here

There are two main ways expectations can influence

● If there's a positive expectation about a product's

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