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- 1. Elasticity Of Demand<br />
- 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. 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. 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. 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. 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. Here changes in quantity demanded and price are infinitesimally small
- 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.
- 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. 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. Predicting Changes in Total Revenue and Total Expenditure in Response to Price Increase<br />
- 13. Categories of Price Elasticity of Demand<br /><ul><li>Perfect elastic demand
- 14. Perfect inelastic demand
- 15. Unit elasticity of demand
- 16. Relatively elastic demand
- 17. Relatively inelastic demand</li></li></ul><li>
- 18.
- 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. 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. Determinants of Price Elasticity of Demand<br /><ul><li>Closeness of substitutes
- 22. The proportion of income spent on the good
- 23. Nature of the commodity
- 24. Extent of uses of the commodity
- 25. Possibilities of deferred consumption
- 26. Brand loyalty
- 27. Habitual usage.</li></li></ul><li>Thank you <br />SwagatGoyal<br />

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