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