Assign On Elasticity Of Demand .Ppt


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Assign On Elasticity Of Demand .Ppt

  1. 1. Elasticity Of Demand<br />
  2. 2. Meaning<br />Elasticity of demand is defined as the percent change in quantity demanded to percent change in the price- MARSHALL<br />Price elasticity of demand measures the degree of responsiveness of quantity demanded of a good to a change in price- BOULDING<br />The formula for the Price Elasticity of Demand (PEoD) is:PEoD = (% Change in Quantity Demanded)/(% Change in Price)<br />
  3. 3. Ed = Percentage Change in Quantity Demanded<br /> Percentage Change in Price <br /> = Change in Quantity Demanded ÷ Change in Price<br /> Quantity Demanded Initially Initial Price <br /> = ∆Qd x P<br />∆P Qd<br />where<br />∆Qd= Change in Quantity Demanded<br />∆P = Change in Price<br />
  4. 4. Elasticity over a Segment of Demand Curve <br />Price<br />D<br />R<br />P0<br />S<br />P1<br />D<br />0<br />Quantity Demanded<br />Q0<br />Q1<br />
  5. 5. Also called arc elasticity-<br />Price Elasticity over a Segment of Demand Curve <br />Q1 – Q0<br />(P0 + P1)/2<br />X<br />ep<br />=<br />P1 – P0<br />(Q0 + Q1)/2<br />P0 + P1<br />Q1 – Q0<br />=<br />X<br />Q0 + Q1<br />P1 – P0<br />P0 + P1<br />Q<br />=<br />X<br />P<br />Q0 + Q1<br />
  6. 6. Elasticity at a Point on the Demand Curve<br /><ul><li>Measurement of point elasticity is same as the price elasticity of demand in a limiting sense
  7. 7. Here changes in quantity demanded and price are infinitesimally small
  8. 8. Point elasticity of demand is different at different point on the demand curve</li></li></ul><li>Elasticity at a Point on the Demand Curve <br />Price <br />D<br />Draw a tangent AB on the demand curve at point R<br />Slope of AB = OB/OA<br />Ep = (OB/OA)* (RN/RM)<br />As triangle AOB, AMR and NRB are similar (OB/OA)= (NB/RN)<br />Ep = (NB/RN)*(RN/RM)<br /> = NB/RM<br />Again NB/RM = RB/AR<br />Ep = RB/AR<br />Ep = Lower Segment<br /> Upper Segment <br />Lower Segment <br />ep<br />=<br />Upper Segment<br />A<br />S<br />R<br />M<br />D<br />B<br />O<br />N<br />Quantity Demanded<br />
  9. 9.
  10. 10. Price Elasticity, Total Revenue and Total Expenditure <br /><ul><li>Total expenditure by the consumer over any given period of time is the number of units of a product purchased over a period Q, multiplied by the price of the product , P
  11. 11. Total Expenditure = P.Q = Total Revenue </li></ul>Price<br />Supply<br />Total Revenue = OAEQ<br />Total Expenditure = OAEQ<br />E<br />A<br />Demand<br />Quantity<br />0<br />Q<br />
  12. 12. Predicting Changes in Total Revenue and Total Expenditure in Response to Price Increase<br />
  13. 13. Categories of Price Elasticity of Demand<br /><ul><li>Perfect elastic demand
  14. 14. Perfect inelastic demand
  15. 15. Unit elasticity of demand
  16. 16. Relatively elastic demand
  17. 17. Relatively inelastic demand</li></li></ul><li>
  18. 18.
  19. 19. Difference between Slope and Elasticity <br /><ul><li>Slope of the Demand Curve </li></ul>ðP<br />ðQ<br /><ul><li> Elasticity on the demand curve
  20. 20. Two demand curves may have the same slope but different elasticities as well as different slope and the same elasticities</li></ul>=<br />P<br />ðP<br />=<br />Q<br />ðQ<br />
  21. 21. Determinants of Price Elasticity of Demand<br /><ul><li>Closeness of substitutes
  22. 22. The proportion of income spent on the good
  23. 23. Nature of the commodity
  24. 24. Extent of uses of the commodity
  25. 25. Possibilities of deferred consumption
  26. 26. Brand loyalty
  27. 27. Habitual usage.</li></li></ul><li>Thank you <br />SwagatGoyal<br />