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    Elasticity of Demand

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    Sharndeep Singh

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    Elasticity of Demand

    Uploaded by

    Sharndeep Singh
    3 views16 pages

    Original Title

    ELASTICITY OF DEMAND

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    3 views16 pages

    Elasticity of Demand

    Uploaded by

    Sharndeep Singh

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    ELASTICITY OF

    DEMAND
    Introduction
    •The law of demand explains the direction of
    change in the quantity demanded, due to the
    changes in the price in case of normal goods.

    •Law of demand explains only the direction but not


    magnitude of change i.e., Law of demand does not
    explain how much quantity
    demanded will change, in response to change in
    the price, the concept of ELASTICITY OF DEMAND
    explain this.
    Definition of PRICE ELASTICITY
    OF DEMAND
    •Degree to which quantity demanded responds to a
    change in price is known as PRICE ELASTICITY OF
    DEMAND.

    •In other words, the PRICE ELASTICITY OF DEMAND is


    the ratio of percentage change in quantity
    demanded, to percentage change in price.
    Mathematically it can be expressed as follows
    PRICE ELASTICITY OF DEMAND

    (Ep)=
    Percentage change in quantity demanded
    /Percentage change in price.

    OR

    (Ep)= Proportionate change in quantity demanded


    / Proportionate change in price.
    TYPES OF PRICE ELASTICITY OF
    DEMAND

    1.) Perfectly elastic demand (Ep=∞)


    2.)Perfectly inelastic demand (Ep =0)
    3.)Unit elastic demand (Ep =1)
    4.) elastic demand(Ep > 1)
    5.) inelastic demand (Ep < 1)
    Perfectly elastic demand (Ep=∞)
    •Perfectly elastic demand is also called as
    infinitely elastic demand.

    •It means small change in price leads to an


    infinite expansion in demand.

    •Perfectly elastic demand curve is


    horizontal straight line to X axis
    Perfectly inelastic demand (Ep =0)
    •In perfectly inelastic demand even with a
    great fall or rise in the price the quantity
    demanded of the product does not change.

    •perfectly inelastic demand curve is vertical


    straight line parallel to Y axis
    Unit elastic demand (Ep =1)

    When the change in demand


    is equal to change in
    price is called unit elasticity
    demand.
    elastic demand(Ep > 1)
    It means Proportionate change
    in price leads to
    more than proportionate
    change in quantity
    demanded is called Relative
    elastic demand.
    inelastic demand (Ep < 1)
    It means Proportionate change
    in price leads to
    less than proportionate change
    in quantity
    demanded is called Relative
    inelastic demand.
    DETERMINANTS OF ELASTICITY OF
    DEMAND
    •AVAILIBILITY OF SUBSTITUTES

    •THE PROPORTION OF CONSUMER’S INCOME


    ON SPENT

    •THE NUMBER OF USES OF A COMMODITY

    •JOINT DEMAND GOODS

    •TIME AND ELASTICITY


    CROSS ELASTICITY OF DEMAND

    the degree of responsiveness of change in


    the demand for one good in response to
    change in price of another good represents
    the cross elasticity of demand of one goods
    for the other.
    Ec=Proportionate change in the
    quantity demanded of
    X/Proportionate change in the
    price of good
    Y
    According to the classification
    based on the concept of cross
    elasticity of demand, goods X and Y
    are substitutes or complements
    according as the cross elasticity of
    demand is positive or negative.
    INCOME ELASTICITY OF DEMAND
    Income elasticity of demand (Yed) measures the
    relationship between a change in quantity
    demanded and a change in real income.

    Yed is change in demand


    change in income

    Ey=Proportionate change in purchase of a good/Proportionate change in the income


    A good having income elasticity more than
    one and which therefore bulks larger in
    consumer’s budget as he becomes richer is
    called a luxury. A good with an income
    elasticity less than one and which claims
    declining proportion of consumer’s income
    as he becomes richer is called a necessity.

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