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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 of demand to changes
in income
Advertisement elasticity of
demand
 Measureshow 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
 Managerialeconomics – Dwivedi
 Modern economic theory – K K Dewett