economics

1. PRESENTATION OUTLINE:
Elasticity of Demand
Price Elasticity of Demand
•Types of PED
Determinants of PED
Income Elasticity of Demand
•Types of IED

2. Concepts Of Elasticity Of Demand:-
Two Variables are considered while measuring
the elasticity of demand :-
 Demand
 Determinants Of Demand
Elasticity Of Demand = percentage change in
quantity demanded
percentage change in
determinant of demand

3. Types Of Elasticity Of Demand:
Demand
Price
Elasticity
Cross Price
Elasticity
Income
Elasticity

4. 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.
Price elasticity of demand =
Percentage change in quantity demanded
Percentage change in price

5. Computing the Price Elasticity of Demand
• Example: If the price of an ice cream cone increases from Rs2.00 to
Rs2.20 and the amount you buy falls from 10 to 8 cones, then your
elasticity of demand would be calculated as
( )
( . . )
.
10 8
10
100
2 20 2 00
2 00
100
20%
10%
2




 

6. Types Of Price Elasticity:-
Price
Elasticity
Perfectly
Elastic
Perfectly
Inelastic
Relatively
Elastic
Relatively
Inelastic
Unitary
Elastic

7. Perfectly elastic demand
P
R
I
C
E
y
0 x
Perfectly elastic
demand curve
D D
When the
demand for a
product changes
–increases or
decreases even
when there is no
change in price,
it is known as
perfect elastic
demand.

8. Perfectly inelastic demand
demand
D
D
Perfectly inelastic
demand curve
0
Y
X
P
R
I
C
E
When a change in
price, howsoever
large, change no
changes in quality
demand, it is known
as perfectly inelastic
demand

9. Relatively elastic demand
Relatively elastic
demand curve
P
R
I
C
E
demand
0 x
y
D
D
When the
proportionate
change in
demand is more
than the
proportionate
changes in
price, it is
known as
relatively elastic
demand.

10. Relatively inelastic demand
Relatively inelastic
demand curve
X
O
Y
demand
D
D
P
R
I
C
E
When the
proportionate
change in demand
is less than the
proportionate
changes in price, it
is known as
relatively inelastic
demand

11. Elasticity of demand equal to
utility
Elasticity of
demand equal
to utility curve
y
x
0 demand
P
R
I
C
E
D
D
When the
proportionate
change in
demand is equal
to proportionate
changes in price,
it is known as
unitary elastic
demand

12. Determinants of Price Elasticity on Demand
•Number of Substitutes: The more substitutes for a
good, the higher the price elasticity of demand; the
fewer substitutes for a good, the lower the price
elasticity of demand. The more broadly defined the
good, the fewer the substitutes; the more narrowly
defined the good, the greater the substitutes.
•Necessities Versus Luxuries: The more that a good
is considered a luxury rather than a necessity, the
higher the price elasticity of demand.

13. Determinants of Price Elasticity on Demand
•Percentage of One’s Budget Spent on the Good:
The greater the percentage of one’s budget that goes
to purchase a good, the higher the price elasticity of
demand; the smaller the percentage of one’s budget
that goes to purchase a good, the lower the elasticity
of demand.
•Time: The more time that passes, the higher the
price elasticity of demand for the good; the less time
that passes, the lower the price elasticity of demand
for the good.

14. Income Elasticity Of Demand:-
Income Elasticity Of Demand =
Proportionate change in Demand
Proportionate change in Income

15. Types Of Income Elasticity Of Demand
•Positive Income elasticity of demand
•Negative Income elasticity of demand
•Zero Income elasticity of demand

16. Zero Income elasticity of demand
Y
X
O
D
D
Quantity Demanded
Income

17. Negative Income elasticity of demand
Price
P
B
A
S
Total Revenue
Quantity Demanded (000s)

18. Positive income Elasticity of Demand:-
•If Ey >1, demand is
considered to be
income elastic.
•If Ey <1, demand is
considered to be
income inelastic.
•If Ey =1, demand is
considered to be unit
elastic.

19. Positive Income elasticity of demand
Y
P
A
D
D
B S
O X
Quantity Demanded
Income