Managerial Economics

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PPT of Managerial Economics By Prof. Manju Shree Naidu on topic Cost Curves at GIM, Gitam University, Vizag

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Managerial Economics

  1. 1. Elasticity??? What and Why?
  2. 2. • Degree of responsiveness of demand to the change in its determinants • Crucial role in business-decisions
  3. 3. Few more…… 1. Price elasticity 2. Cross Elasticity 3. Income Elasticity 4. Advertisement Elasticity 5. Elasticity of price expectations
  4. 4. Price Elasticity??? What is it? • Definition: Responsiveness or sensitiveness of demand for a commodity to the changes in its price • Percentage change in demand / Percentage change in price
  5. 5. How to do? ∆Q ∆P ∆Q P Ep = ------- ÷ ------- = ----- x ----- Q P ∆P Q Where Q = Original quantity demand P = Original Price ∆ Q = New Quantity demanded – Original quantity demanded ∆ P = New Price – Original Price
  6. 6. Problem: The price of product Bread is Rs. 20/-, quantity demanded is 1000 packets and the price increased from Rs. 20/- to Rs. 30/-, the quantity demanded is decreased from 1000 packets to 850 packets. ∆Q P 850-1000 20 Ep = ------- x ----- = ----------- x ------- 1000 ∆P Q 30-20 Ep = -0.3 Ep < 0 - Relatively inelastic in nature as there is slight variation in demand even though there is rise in price
  7. 7. Determinants of Price Elasticity • Availability of substitutes • Nature of commodity • Weight age in the total consumption • Time faction in adjustment of consumption patterns • Range of commodity use • Proportion of market supplied
  8. 8. Types of Price Elasticity There are 5 types of Price Elasticity • Perfectly Elasticity of Demand • Perfectly Inelasticity of Demand • Unitary Elasticity of Demand • Relatively Elasticity of Demand • Relatively Inelasticity of Demand
  9. 9. Perfectly Elasticity of Demand •E = Infinity •Eg: Medicines
  10. 10. Perfectly Inelasticity of Demand •E = 0 •Eg: Suger
  11. 11. Unitary Elasticity of Demand •E = 1
  12. 12. Relatively Elasticity of Demand •E > 1 •Eg: Mobiles, Gold
  13. 13. Unitary Elasticity of Demand Relatively Inelasticity of Demand • E=1 •E < 1 •Eg: Inferior goods
  14. 14. Applications • Relationship between price and total revenue • Determining what goods to tax • Analyzing time tags in productive • Behaviour of a firm

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