Elasticityand its types

1. BUSINESS ECONOMICS
PRESENTATION
MAYANK CHOUDHARY
SHUBHAM SAXENA

2. ELASTICITY
It is the measurement of how changing one
economic variable affects others.
Mathematical Expression:
Elasticity of y with respect to x:

3. TYPES OF ELASTICITY
Price elasticity of demand
Price elasticity of supply
Income elasticity of demand
Cross elasticity

4. IF PRICE RISES BY 10% - WHAT HAPPENS TO
DEMAND?
WE KNOW DEMAND WILL FALL
BY MORE THAN 10%?
BY LESS THAN 10%?
When price rises, what happens
to demand?
Demand falls
BUT!
How much does demand fall?

5. PRICE ELASTICITY OF DEMAND
 According to Marshall:
It is the responsiveness of demand to
changes in price.
Mathematical expression:
Ped =
% change in Quantity Demanded
% change in Price
___________________________

6. DIFFERENT VALUE IF PED:
 If Ped = 0 demand is perfectly inelastic.
 If Ped is between 0 and 1, demand is inelastic.
 If Ped = 1, demand is unit elastic.
 If Ped > 1, demand is elastic.
 If Ped = infinity, Demand is Perfectly elastic

7. GRAPH:
Price (£)
Quantity Demanded
The demand curve can be a
range of shapes each of
which is associated with a
different relationship
between price and the
quantity demanded.
Ped=1
Ped=0Ped:0 to 1
Ped=Infinity
Ped>1

8. CASE 1:
Price (Rs)
Quantity Demanded
Producer decides to lower price to attract sales
10
5
5 6

9. CASE 2:
Price (Rs.)
Quantity Demanded
10
7
5 20
Producer decides to reduce price to increase sales

10. EFFECTS DUE PRICE CHANGE
 For necessity items:
The things that we have relative inelastic demand,
regardless of price.. The demand for these things
changes only slightly, if at all, when prices change.
For Luxury items:
 Luxury products are elastic, in comparison to
necessity products which are inelastic.
 Luxury goods are elastic because for a change in
price there is a more than proportionate change in
quantity.

11. PRICE CHANGE IN LUXURY & NECESSITY
GOODS
Necessity items Luxury items

12. FACTORS INFLUENCING PRICE ELASTICITY OF
DEMAND:
 Nature of Commodity
 Availability of Substitutes
 Number of Uses
 Durability of commodity
 Consumer’s income

13. THANK YOU…..