Elasticity of demand-meaning-definition-kinds and types of elasticity of demand-factors affecting elasticity of demand-importance of elasticity of demand

2.  DEFINITION
 MEANING OF ELASTICITY OF DEMAND
 KINDS OF ELASTICITY OF DEMAND
 TYPES OF ELASTICITY OF DEMAND
 FACTORS AFFECTING ELASTICITY OF
DEMAND
 IMPORTANCE OF ELASTICITY OF
DEMAND

3. Definition:
The elasticity of demand is an
economic principle that measures the extent of
consumer response to changes in quantity
demanded as a result of a price change, as long
as all other factors are equal. In other words, it
shows how many products customers are willing
to purchase as the prices of these products
increases or decreases.

4. Meaning of Elasticity of Demand:
Demand extends or contracts
respectively with a fall or rise in price. This quality of
demand by virtue of which it changes (increases or
decreases) when price changes (decreases or increases)
is called Elasticity of Demand.
“The elasticity (or responsiveness) of demand in a
market is great or small according as the amount
demanded increases much or little for a given fall in
price, and diminishes much or little for a given rise in
price”. – Dr. Marshall.

5. KINDS OF
ELASTICITY
OF DEMAND
PERFECTLY
ELASTIC
DEMAND
PERFECTLY
INELASTIC
DEMAND
RELATIVELY
ELASTIC
DEMAND
RELATIVELY
INELASTIC
DEMAND
UNITARY
ELASTIC
DEMAND

6. 1. Perfectly Elastic Demand:
When a small change in price of a
product causes a major change in its demand, it is said
to be perfectly elastic demand. In perfectly elastic
demand, a small rise in price results in fall in demand to
zero, while a small fall in price causes increase in
demand to infinity. In such a case, the demand is
perfectly elastic or ep = 00.

7. 2. Perfectly Inelastic Demand:
A perfectly inelastic demand is one
when there is no change produced in the demand of a
product with change in its price. The numerical value for
perfectly inelastic demand is zero (ep=0).

8. 3. Relatively Elastic Demand:
Relatively elastic demand refers
to the demand when the proportionate change
produced in demand is greater than the proportionate
change in price of a product. The numerical value of
relatively elastic demand ranges between one to
infinity (ep>1).

9. 4. Relatively Inelastic Demand:
Relatively inelastic demand is one when the percentage
change produced in demand is less than the percentage change in
the price of a product. For example, if the price of a product
increases by 30% and the demand for the product decreases only
by 10%, then the demand would be called relatively inelastic. The
numerical value of relatively elastic demand ranges between zero to
one (ep<1). Marshall has termed relatively inelastic demand as
elasticity being less than unity.

10. 5. Unitary Elastic Demand:
When the proportionate change in demand
produces the same change in the price of the product,
the demand is referred as unitary elastic demand. The
numerical value for unitary elastic demand is equal to
one (ep=1).

11. TYPES OF
ELASTICITY
OF DEMAND
PRICE
ELASTICITY
OF DEMAND
INCOME
ELASTICITY
OF DEMAND
CROSS
ELASTICITY
OF DEMAND
ADVERTISING
ELASTICITY
OF DEMAND

12. 1.Price Elasticity of Demand:
The price elasticity of demand,
commonly known as the elasticity of demand refers to
the responsiveness and sensitiveness of demand for a
product to the changes in its price. In other words,
the price elasticity of demand is equal to
Numerically,

13. 2. Income Elasticity of Demand:
The income is the other factor
that influences the demand for a product. Hence,
the degree of responsiveness of a change in demand
for a product due to the change in the income is
known as income elasticity of demand. The formula
to compute the income elasticity of demand is:

14. 3.Cross Elasticity of Demand:
The cross elasticity of demand refers to
the change in quantity demanded for one commodity
as a result of the change in the price of another
commodity. This type of elasticity usually arises in
the case of the interrelated goods such as
substitutes and complementary goods. The cross
elasticity of demand for goods X and Y can be
expressed as:

15. 4.Advertising Elasticity of Demand:
The responsiveness of the change
in demand to the change in advertising or rather
promotional expenses, is known as advertising
elasticity of demand. In other words, the change in
the demand as a result of the change in
advertisement and other promotional expenses is
called as the advertising elasticity of demand. It can
be expressed as:

16.  Nature of commodity: Necessaries have less than
unitary elastic demand whereas, luxuries have more than
unitary elastic demand.
Time period: Demand is inelastic in short period but
elastic in long period.
 Price level: elasticity of demand will be high at
higher level of the price of the commodity and low at
lower level of price.
 Diversity of uses: Commodities that can be put to
variety uses have elastic demand. On the other hand, if a
commodity has only few uses, its demand is likely to be
less elastic.
 Habit of consumers: Goods to which consumers
become habitual will have inelastic demand.
FACTORS AFFECTING ELASTICITY OF
DEMAND

17.  In the Determination of Output Level
 In the Determination of Price
 In Price Discrimination by Monopolist
 In Price Determination of Factors of
Production
 In Demand Forecasting
 In the Determination of Prices of Joint
Products and Other.
IMPORTANCE OF ELASTICITY OF DEMAND

18. BY
MSD