Elasticity Of Demand


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Elasticity Of Demand

  1. 1. Elasticity of Demand
  2. 3. Elasticity – the concept <ul><li>If price rises by 10% - what happens to demand? </li></ul><ul><li>We know demand will fall </li></ul><ul><li>By more than 10%? </li></ul><ul><li>By less than 10%? </li></ul><ul><li>Elasticity measures the extent to which demand will change </li></ul>
  3. 4. Definitions
  4. 5. Formula
  5. 6. Degrees of Price Elasticity of demand
  6. 7. 1. Perfectly Elastic Demand <ul><li>It is a situation where a little change in price will cause an infinite change in Demand. </li></ul>
  7. 8. 2.Perfectly Inelastic Demand <ul><li>It is a situation in which a change in price produces no change in the quantity demanded. </li></ul>
  8. 9. 3.Unitary Elastic Demand <ul><li>It is a situation when percentage change in price is same as change in quantity demanded. </li></ul>
  9. 10. 4. Relatively Elastic Demand <ul><li>It is a situation when percentage change in quantity demanded is greater then percentage change in price. </li></ul>
  10. 11. 5. Relatively Inelastic Demand <ul><li>It is a situation where percentage change in quantity demanded is less than price </li></ul>
  11. 16. Cross Elasticity of Demand
  12. 17. Degrees of Cross Elasticity of Demand <ul><li>Positive : </li></ul>
  13. 18. Negative
  14. 20. Income Elasticity of Demand
  15. 21. Degrees of Income Elasticity of Demand <ul><li>1)Positive Income Elasticity of Demand : </li></ul>
  16. 22. Positive Income Elasticity of Demand can be of three types
  17. 23. 2) Negative Income Elasticity of Demand
  18. 24. 3)Zero Income Elasticity of Demand
  19. 26. Methods to measure Price Elasticity of Demand
  20. 27. 1.Total Expenditure Method <ul><li>Prof. Marshall has evolved this method. According to this method , Elasticity of Demand can be measured by considering the change in price and the subsequent change in the total quantity of goods purchased and the total amount of money spent on it. </li></ul>
  21. 30. Graphical Representation
  22. 31. 2. Proportionate or Percentage Method
  23. 32. 3. Point Method <ul><li>This method was also suggested by Prof. Marshall and it takes into consideration a straight line demand curve and measures elasticity at different points on the curve. </li></ul>
  24. 33. 1. Linear Demand Curve
  25. 34. 2. Non-Linear Demand Curve
  26. 35. 4. Arc Elasticity of Demand <ul><li>According to Leftwitch, “When elasticity is computed between two separate points on a demand curve , the concept is called Arc Elasticity.” </li></ul>
  27. 37. Formula for Arc Elasticity of Demand
  28. 38. 5. Revenue Method <ul><li>Mrs. Joan Robinson has given this formula. She says Elasticity of demand can be measured with the help of average and marginal revenue. </li></ul>