BUSINESS ECONOMICS
Group no: 6
Class: F. Y. BCOM. Div :D
Name:Salina Khan
Name:Sayali Kharat
Name:Gurdeep Sandhu
Name: Aarti
Name: Abhishek
Name: Devika
Roll no:501
Roll no:504
Roll no:505
Roll no: 508
Roll no:509
Roll no:510
ELASTICITY OF DEMAND
■ Elasticity of demand is an important variation on the concept of demand. The
law of demand indicates only the direction of change in quantity demanded in
response to a change in price. Demand of good is determined by its price,
income of the consumer, prices of related goods etc. The quantity demand of a
good will change as a result of a change in the size of any of these
determinants of demand. The concept of elasticity of demand (ed) therefore
refers to the degree of responsiveness of quantity demanded of a good to a
change in its price, income and prices related to goods.
• There are 3 kinds of demand
elasticity:
•
•
•
1) Price elasticity of demand
2) Income elasticity of
demand
3) Cross elasticity of
demand
PRICE ELASTICITY OF DEMAND
■ A good's price elasticity of demand is a measure of how sensitive the quantity
demanded is to its price. When the price rises, quantity demanded falls for
almost any good, but it falls more for some than for others.
■ Perfectly elastic demand:Perfectly elastic demand is when the price is constant
but there is a change in the demand that is increase or decrease of a
commodity.
■ EP = ∞
■ Perfectly inelastic demand: Perfectly inelastic demand is when the demand is
constant or there is no change in the demand of a commodity even if the price
changes that is increases or decreases.
■ EP = 0
■ Relatively elastic demandRelatively elastic demand is when
the proportionate change in demand is more than the
proportionate change in the price.
■ EP ˃ 1
■ Relatively inelastic demandRelatively inelastic demand is
when the proportionate change in demand is less than the
proportionate change in the price.
■ EP ˂ 1
■ Unitary elastic demandUnitary elastic demand is when the
proportionate change in demand is equal to the
proportionate change in price.
■ EP = 1
INCOME ELASTICITY OF
DEMAND
■ The income elasticity of demand is the
responsivenesses of the quantity demanded for a good
to a change in consumer income.
■ Zero income elasticity (Yed=0)
A zero income elasticity of demand
means that an increase in income
does not change the quantity
demanded of the good.
■
Negative income elasticity (Yed <0)
Negative income elasticity means
that an increase in income will lead
to a fall in the quantity demanded.
■ Unitary income elasticity
(Yed=1) Unitary income
elasticity means the rise in
income is proportionate to the
increase in the quantity
demanded.
■ Low income elasticity (Yed
<1) Low income elasticity
means a jump in income is
less than proportionate to the
increase in the quantity
demanded
■ High income elasticity (Yed>1) Hight income
elasticity means rise in income comes with bigger
increases in the quantity demanded.
CROSS ELASTICITY OF DEMAND
■
The cross price elasticity of demand is the degree
of responsiveness of quantity demanded of a
commodity due to the change in price of another
commodity.
■ Positive cross elasticity of demand:
■ When the goods or products or even services, are a
substitute for each other, the cross elasticity of
demand is positive.
■
■ Negative cross elasticity of demand:
■ When the goods are complementary to each other,
there is a negative cross elasticity of demand.
■
■ Zero cross elasticity of demand:
■ When two goods are not related to each other at is
termed as a zero-cross elasticity of demand
Thank you