Elasticity of DemandElasticity of Demand

ByBy

Jerry JoseJerry Jose

PGD(BA)PGD(BA)

Ceteris- paribusCeteris- paribus

It is a Latin term which means that ….It is a Latin term which means that ….

Except Demand and price all other Except Demand and price all other things like .. things like .. Income,Trends,Population,Scarcity,Season Income,Trends,Population,Scarcity,Season etc.etc. will remain the same … will remain the same …

What is Elasticity ?What is Elasticity ?

Elasticity is a tool that Elasticity is a tool that measures the measures the responsiveness of theresponsiveness of the quantity quantity demanded of a good to its pricedemanded of a good to its price. .

Kinds of Elasticity….Kinds of Elasticity….

Price Elasticity of DemandCross-Price Elasticity of DemandIncome Elasticity of Demand

Perfect Inelastic Demand….Perfect Inelastic Demand….

No Matter what No Matter what the price of the the price of the good is the good is the demand will be demand will be the samethe same

Examples…..Examples…..

Salt.

Perfect Elastic Demand….Perfect Elastic Demand….

A fractional A fractional change in the change in the price may bring price may bring about huge about huge change in the change in the Quantity of Quantity of demand.demand.

Examples….Examples….

Soap. Wada pav

Tea & Coffee

Unitary Elasticity…Unitary Elasticity…

Inverse change in Inverse change in Qty. demand on Qty. demand on price will be price will be proportional if price proportional if price increases.increases.

Example….Example….

Fruits & vegetables

Relative Elastic Demand….Relative Elastic Demand….

When importance of When importance of any commodity is any commodity is understood the understood the necessity is also necessity is also there. there.

Example….Example….

VaccinationMedicines

Cure for AIDS

Relatively Inelastic Demand….Relatively Inelastic Demand….

Phenomenal change in price will not make change in demand.

Examples…Examples…

How to calculate Elasticity ?How to calculate Elasticity ?

Percentage change in quantity demandedPercentage change in quantity demandedη = -------------------------------------------= -------------------------------------------

Percentage change in pricePercentage change in price

Q & AQ & A

Thank You !!!Thank You !!!