Macro Economics For downloading this contact- bikashkumar.bk100@gmail.com Prepared by Students of University of Rajshahi Anamica Chakraborty Sagor Datta Sathee Khanam Thanvir Hasan Sharin Afroz

2. COURSE AND INDUCTOR
INTRODUCTION
Course name:
Micro
Economics

3. Group No:2
group name:
The Superlatives

4. Presentation topic
Elasticity of demand
Meaning of elasticity
Elastic and inelastic demand
Types of elasticity
Factors determining price elasticity
Measurement of elasticity
Arc elasticity
Theoretical importance
Relationship
The practical application of elasticity of demand

6. Elasticity of Demand
Definition:
Elasticity of demand means the ratio of
percentage change in quantity of a good demanded in
response to the percentage change in other
economics variable like price ,consumer income and
commodities .

8. Elastic Demand
Demand that increases or
decreases in a big portion as the price of an item
goes up or goes down.
Price
(p)
Quantity
Demanded
(Q)
Percentage
change in price
Percentage
change in
quantity
demanded
Elastic
demand
=∆Q/∆P
$20
$15
10 units
20 units 5/20*100
=25%
10/10*1
00
=100%
100%/2
5%
=4>1

9. Elastic Demand Curve

10. Inelastic Demand
Demand that increases or decreases in a little portion or not
as the price of an item goes down or goes up .
Price
(P)
Quantity
Demanded
(Q)
Percentage
Change in
Price
Percentage
change in
Quantity
demanded
Inelastic
Demand
=∆Q/∆P
$50
$30
20 units
25 units 20/50 *100
=40%
5/20*100
=25%
25%/40
% =
0.62< 1

11. Inelastic Demand Curve

13. Types of
elasticity

14. Price Elasticity
Income Elasticity
Cross Elasticity

16. Price Elasticity
The ratio of percentages change in quantity
demanded in response to the percentages
change in price is called price elasticity

19. Income Elasticity
The ratio of percentages change in quantity demanded in
response to the percentages change in consumers income
is called income elasticity.

22. Cross Elasticity
The cross elasticity of demand shows the
relationship between two goods or services
(substitutes and complementary) . The ratio
of percentages change in the price of one
goods ( X) causes change in the demand for
other goods (Y) is called cross elasticity.

24. Factors of
determining price
elasticity of demand

25. Determination Factors:
 Availability of substitutes
 Nature of commodities
 Income level
 Level of price
 Number of uses

26. Measurements
of elasticity

27. Measurements:
 Measurement of price elasticity of demand
 Total Outlay Method
 Proportional Method
 Geometrical Method

28. Measurement of price
Elasticity
Perfectly Elastic Demand : If a little change
or no change in price will lead to an
significantly large change in quantity
demanded.




0
1QQ
P
Q
ED

29. Perfectly Inelastic Demand: If a large change in
price we lead to no change in quantity demand
is called perfectly inelastic demand.
0
0
21




PPP
Q
ED

30. Unit Elasticity of Demand :
When the percentage changes in price is equal
to the percentage changes in quantity demanded is
called unit elasticity of demand.
1
10
10




PP
QQ
P
Q
ED

31. Relatively Elastic Demand :
when the percentage changes in price is lower
than the percentages changes in quantity
demanded is called relatively elastic demand.
1
21
10




PP
QQ
P
Q
ED

32. Relatively Inelastic Demand:
When the percentage changes in price is
getter than percentage changes in quantity demanded is
called relatively inelastic demand.
1
1
1




PP
MM
P
Q
ED

33. Total Outlay Method
Unity:when even though the price changed the total amount spent
remains the same.
Price
(p)
Quantity
Demanded
(Q)
Total Cost
TC=PQ
Elasticity
Ed=1
10
12
6
5
60
60
Ed=60/60
=1

34. Getter than Unitery : When the total amount of money
spent increases with a fall in price or decreases with a
rise in price the elasticity is said to be greater than unitery
.(as between the two prices)
Price
(p)
Quantity
Demanded
(Q)
Total Cost
TC=PQ
Elasticity
Ed>1
10
20
6
4
60
80
Ed=80/60
Ed>1

35. Less than Unitery : when the total amount of
money spent increases with a fall in price or decreases
with a rise in price the elasticity is said to be less than
unitery .(as between two prices)
Price
(P)
Quantity
Demanded
(Q)
Total Cost
TC=PQ
Elasticity
Ed<1
10
6
6
8
60
48
Ed=48/60
Ed<1

36. Proportional Method
Under this method ,we measure elasticity by
comparing the percentage change in price
with the percentage change in demand.
Price
(p)
Percentage
change in
price
Quantity
Demanded
Percentage
Change in
quantity
demanded
Elasticity
50
40 20%
40
60 50%
Ed
=50%/20%
=2.5%

37. Geometrical Method

38. Theoretical
importance

39. Important factors are:
 Price determination
 Price discrimination
 Relation between price elasticity, average revenue and marginal
revenue.
 Measuring degree of monopoly power
 Classification of goods as substitute and complements
 Boundary between industry
 Market forms
 Incidence of taxes
 Theory of distribution

41. application s are:
 Taxation
 Monopoly price
 Joint products
 Increasing returns
 Wages
 Effect on the economy
 Economics policies
 International trade
 Rate of foreign exchange