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Economics 1 l04_v01

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This is for CA-CPT Economics for Chapter Elasticity of Demands.

This is for CA-CPT Economics for Chapter Elasticity of Demands.

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  • 1. Economics – Lecture 4 Elasticity of Demands Balanced Sheets Ph : +91 9462550350 www.balancedsheets.co.in
  • 2. Elasticity of demand
    • Change in quantity demanded with change in one of the determinants.
    • Most common elasticity is Elasticity of Demand against price change of the commodity.
    • Other elasticity
      • Elasticity to Income
      • Elasticity to Substitutes price change
      • Elasticity to Complements price change etc.
  • 3. Determinants of Price elasticity
    • How elastic or inelastic is the demand of a commodity depends largely on below mentioned Determinants
    • Availability of substitutes
    • Position of commodity in consumers budget
    • Nature of need (Luxury or necessities)
    • Number of uses: more uses more elasticity
    • Period of adjustment. (Long Term or short term elasticity)
    • Consumer habit
    • Tied demand : Those goods which are tied to other goods is more inelastic (Like : Cones with Ice Cream)
  • 4. Price Elasticity of Demand
    • Computation or Price Elasticity of Demand
    • The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.
    • Eg. : If the price of Bread increase from Rs. 20 to Rs. 25 and the qty. demanded falls from 20 packets to 16 Packets then elasticity of demand will be.
  • 5. Types of elasticity Based on quantum of Elasticity
    • Zero- no change( Perfectly inelastic)
      • Any price change will not effect the quantity demanded. Eg. Medicines
    • Greater than zero but less than one
      • Quantity Demanded will change with lesser percentage then Price movement
    • One ( unitary elastic)
      • Change in quantity demanded will be exactly equal to % change in price
    • Greater than one but less than infinity
      • Quantity demanded will change with higher percentage then price change
    • Infinity ( perfectly elastic)
      • Any price change will result in 0 demand
  • 6. Types of elasticity Zero Elasticity (Perfect Inelastic Demand) Quantity 0 Price 5 4 Demand 100 1. An increase in price . . . 2. . . . leaves the quantity demanded unchanged.
  • 7. Types of elasticity Elasticity (0-1) (Inelastic Demand) Quantity 0 Price 5 90 Demand 1. A 25% increase in price . . . 2. . . . leads to an 10% decrease in quantity demanded. 4 100
  • 8. Types of elasticity Unit Elasticity (Elasticity Equals to “1”) Quantity 0 Price 2. . . . leads to a 25% decrease in quantity demanded. 4 100 5 75 1. A 25% increase in price . . . Demand
  • 9. Types of elasticity Elasticity (>1) (Elastic Demand) Quantity 0 Price Demand 4 100 5 50 1. A 25% increase in price . . . 2. . . . leads to a 50% decrease in quantity demanded.
  • 10. Types of elasticity Infinite Elasticity (Perfectly Elastic Demand) Quantity 0 Price 4 Demand 2. At exactly 4, consumers will buy any quantity. 1. At any price above 4, quantity demanded is zero. 3. At a price below 4, quantity demanded is infinite.