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# Elasticity

## on Jan 10, 2012

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## ElasticityPresentation Transcript

• ELASTICITY OF DEMAND EXPLAINS THE MAGNITUDE OF THE IMPACT OF THE CHANGES IN THE FACTORS INFLUENCING DEMAND ON THE QUANTITY DEMANDED.
• ELASTICITY IS THE REACTION OF ONE VARIABLE, WITH RESPECT TO CHANGES IN OTHER VARIABLES.
• PRICE ELASITICITY OF DEMAND
• INCOME ELASITICITY OF DEMAND
• CROSS ELASITICITY OF DEMAND
• EXPECTATION ELASITICITY OF DEMAND
• FACTORS AFFECTING ELASTICITY OF DEMAND
• NATURE OF THE COMMODITY.
• NUMBER OF SUBSTITUTES.
• NUMBER OF USES OF A COMMODITY.
• PRICE LEVEL OF THE COMMODITY.
• POSITION OF COMMODITY IN CONSUMER’S BUDGET.
• POSTPONEMENT OF DEMAND.
• JOINT DEMAND.
• CONSUMER’S BEHAVIOUR.
• ELASTICITY OF DEMAND IN DECISION MAKING PROCESS
• (b) ECONOMIC POLICIES OF GOVERNMENT.
• (c) DETERMINATION OF PUBLIC UTILITIES.
• (d) TAXATION POLICY.
• (e) DETERMINATION OF FACTOR PRICING.
• SLOPE AND ELASTICITY
• THE ELASTICITY OF DEMAND IS DEFINED AS
• e p = Δq x p = 1 x p
• Δp q Δp/Δq q
• AS SLOPE OF THE DEMAND CURVE IS Δp/Δq (CHANGE IN ‘Y’ DIVIDED BY CHANGE IN ‘X’), THE ABOVE FORMULA CAN BE REWRITTEN AS
• e p = 1 x p
• Slope q
•  e p  1 if p is constant
• Slope q
• INCOME ELASTICITY OF DEMAND
• THUS, INCOME ELASTICITY OF DEMAND, e y 6 OF ANY COMMODITY IS
• e Y = Percentage change in the quantity demanded of commodity ‘X’
• Percentage change in income of the consumer
• Δq
• q
• e p = Δy = Δq x y = Δq x y
• y q Δy Δy q
• Where,
• q stands for the quantity demanded.
• y stands for the income of the consumer.
• Δq stands for the change in the quantity demanded.
• Δy stands for the change in income of the consumer.
• CROSS ELASTICITY OF DEMAND
• LET THE QUANTITY DEMANDED OF COMMODITY ‘X’ DEPENDS UPON THE PRICE OF COMMODITY ‘Y’. CROSS ELASTICITY OF DEMAND (e c ) BETWEEN ‘X’ AND ‘Y’ IS :
• Percentage change in the quantity demanded of commodity ‘X’
• Percentage change in the price of commodity ‘Y.
• Δq x
• q x
• Or, e c = Δp y = Δq x x p y = Δq x x p y
• p y q x Δp y Δp y q x