This document provides an overview of elasticity of demand, including: - Definitions of price elasticity of demand and the types of elasticities, including perfectly elastic, perfectly inelastic, relatively elastic, relatively inelastic, and unit elastic demands. - Factors that affect price and income elasticities of demand, such as commodity nature, availability of substitutes, and proportion of income spent. - Explanations and diagrams demonstrating zero income elasticity, negative income elasticity, and positive income elasticity of demand. - Measurements of income elasticity and how it is calculated using changes in quantity demanded and income. - Other elasticities discussed include cross elasticity of demand and advertising

1. PRESENTATION ON:
ELASTICITY
OF
DEMAND

2. PREPARED BY :
RANJANE ROHAN V.
ENROLMENT NO: 160503119059
BRANCH : MECHANICAL ENGG.
SEMESTER :4TH (1ST SHIFT)

3. DEFINITION OF PRICE ELASTICITY OF
DEMAND
The change in the quantity demanded of a
product due to a change in its price is known
as Price elasticity of demand. Thus, the
sensitiveness or responsiveness of demand
to change in price is as called elasticity of
demand

4. TYPES OF PRICE ELASTICITY OF
DEMAND
1) Perfectly elastic demand (Infinitely Elastic)
2) Perfectly inelastic demand
3) Relatively elastic demand
4) Relatively inelastic demand
5) Unit Elasticity of demand (Unitary Elastic)

5. 1. PERFECTLY ELASTIC DEMAND
P
R
I
C
E
y
0 x
Perfectly elastic
demand curve
D D
When the
demand for a
product
changes –
increases or
decreases
even when
there is no
change in
price, it is
known as
perfect elastic
demand.
demand

6. 2. PERFECTLY INELASTIC DEMAND
demand
D
D
Perfectly inelastic
demand curve
0
Y
X
P
R
I
C
E
When a change in
price, howsover
large, change no
changes in quality
demand, it is
known as perfectly
inelastic demand

7. 3. RELATIVELY ELASTIC DEMAND
Relatively elastic
demand curve
P
R
I
C
E
demand0 x
y
D
D
When the
proportionate
change in
demand is
more than the
proportionate
changes in
price, it is
known as
relatively
elastic
demand.

8. 4. RELATIVELY INELASTIC DEMAND
Relatively inelastic
demand curve
XO
Y
demand
D
D
P
R
I
C
E
When the
proportionate
change in
demand is less
than the
proportionate
changes in price,
it is known as
relatively inelastic
demand

9. 5. UNIT ELASTICITY OF DEMAND
Elasticity of
demand equal
to utility curve
y
x0 demand
P
R
I
C
E
D
D
When the
proportionate
change in
demand is
equal to
proportionate
changes in
price, it is
known as
unitary elastic
demand

10. ALL KINDS OF DEMAND CAN BE SHOWN
IN ONE DIAGRAM AS FOLLOW
D
D1
D2
D3
D4
D5
Y
X0
DEMAND
P
R
I
C
E
WHERE
D1) Perfectly elastic
demand
D2)Relatively elastic
demand
D3)Elasticity of demand
equal to utility
D4)Relatively inelastic
demand
D5)Perfectly inelastic
demand

11. FACTORS AFFECTING PRICE
ELASTICITY OF DEMAND
Nature of the Commodity
Availability of Substitutes
Variety of uses of commodity
Postponement
Influence of habits
Proportion of Income spent on a
commodity
Range of prices

12. Income Groups
Elements of time
Pattern of income distribution

13. TYPES OF INCOME ELASTICITY OF
DEMAND
Zero Income elasticity of demand
Negative Income elasticity of demand
Positive Income elasticity of demand

14. 1. ZERO INCOME ELASTICITY OF DEMAND
Y
XO
D
D
Quantity Demanded
Income

15. 2. NEGATIVE INCOME ELASTICITY OF
DEMAND
Price
P
B
A
S
Total Revenue
Quantity Demanded (000s)

16. 3. POSITIVE INCOME ELASTICITY OF
DEMAND
Y
P
A
D
D
B S
O
XQuantity Demanded
Income

17. •POSITIVE INCOME ELASTICITY OF
DEMAND
Income Elasticity Equal to Unity or
One
Income Elasticity Greater Than
Unity Or One
Income Elasticity Less Than Unity
or One

18. ALL INCOME GRAPHS
REPRESENTATION
O
Y
Income
A
B
C
D
E
F
X
Quantity Demanded

19. MEASUREMENT OF INCOME ELASTICITY OF DEMAND
Income Elasticity Of
Demand =
Proportionate change in
Demand
Proportionate change in
Income
i.e.
Income Elasticity Of
Demand =
∆q
Q Y
∆y
+

20. MEASUREMENT OF INCOME ELASTICITY
OF DEMAND
Here , ∆q = Change in the quantity demanded.
Q = Original quantity demanded.
∆y = Change in income.
Y = Original income.
For e.g. ,when Income of the consumer =
2,500/- , he purchases 20 units of X, when
income = 3,000/- he purchases 25 units of X

21. Thus
Income Elasticity of Demand
=
= (5/20) + (500/2500)
= 1.5
therefore here the IED is 1.5 which is more
than one.
∆q
Q Y
∆y
+

22. FACTORS AFFECTING INCOME OF
DEMAND
Income Itself Only.
Price Of the Commodity

23. IMPORTANCE OF THE CONCEPT OF
INCOME ELASTICITY OF DEMAND
In production planning and management
In forecasting demand when change in
consumers income is expected
In classifying goods as normal and inferior
In expansion and contraction of the firm by the
figure of income elasticity of demand
Markets situations could be studied with the
help of IED

24.  CROSS ELASTICITY OF DEMAND
Cross elasticity of demand express a
relationship between the change in the
demand for a given product in
response to a change in the price of
some other product
E.g. if the X tea demand reduces
tremendously than it effect could be seen
in demand of sugar and milk.

25. MEASUREMENT CROSS ELASTICITY OF
DEMAND
Proportionate change in
Demand for product X
Proportionate change in Price
of product Y
Cross Elasticity of
Demand =

26. ADVERTISING ELASTICITY OF DEMAND
Advertising elasticity of demand is the
measure of the rate of change in
demand due to change in advertising
expenditure
The amount of change in demand of
goods due to advertisement is known as
Advertisement Elasticity of Demand .

27. ADVERTISING ELASTICITY OF DEMAND
Proportionate change in
Demand for product
Proportionate change in
Advertising expenditure
i.e.
∆qx
Q A
∆a
÷
Advertising Elasticity of
Demand =
Advertising Elasticity of
Demand =

28. THANK YOU