Elasticity Of Demand

Elasticity Of Demand

Contents  Degrees

of elasticity of demand

 Concepts

of elasticity of demand

 Determinants

of elasticity of demand

Elasticity of demand  ~~

is the degree of responsiveness of demand to change in its determinants

 Determinants

are Price of the product, income of the consumer, price of related goods, taste and preferences of the consumer etc

Degrees of elasticity of demand

 Perfectly

elastic demand  Perfectly inelastic demand  Unit elastic demand  Relatively inelastic demand  Relatively elastic demand

Perfectly elastic demand 



~ Quantity demanded changes even though there is no change in price Elasticity is infinity

Perfectly inelastic demand 



Change in price has no effect on quantity demanded Elasticity is Zero

Unitary Elasticity of demand 



Change in price is equal to Change in quantity demanded Elasticity is 1

Relatively inelastic demand 



Change in price is more and corresponding change in quantity demanded is less Elasticity < 1

Relatively elastic demand 



Change in price is less but corresponding change in quantity is more Elasticity > 1

Concepts of elasticity of demand  Price

elasticity of demand  Cross elasticity of demand  Income elasticity of demand  Advertisement elasticity of demand  Elasticity of price expectation

Price elasticity of demand  Responsiveness

of demand for a commodity to changes is in its price

Cross Elasticity of demand  Degree

of responsiveness of demand for a commodity to changes in price of its substitutes and complementary

Income elasticity of demand  Responsiveness

in income

of demand to changes

Advertisement elasticity of demand  Measures

how advertising affects the demand of a certain product.

Elasticity of price expectations  Expected

change in future price as a result of change in current prices of a product

Determinants of elasticity of demand

 Substitutes:

The more substitutes, the higher the elasticity, as people can easily switch from one good to another if a minor price change is made  Necessity: The more necessary a good is, the lower the elasticity, as people will buy it no matter the price

 Range

of Commodity use: Higher the range of use of a commodity higher the elasticity  Weightage of product in total consumption: the greater the percentage of a total income spent on the commodity, the greater the person’s price elasticity of demand for that commodity  Time: longer any price change persists, the greater the price elasticity of demand

References  Managerial

economics – Dwivedi  Modern economic theory – K K Dewett