This document defines and explains different types of elasticity of demand including price elasticity, income elasticity, cross elasticity, and advertising elasticity. It discusses how elasticity is measured and factors that influence different types of elasticity. Key types are defined such as perfectly inelastic/elastic demand curves. Methods to measure elasticity including percentage and total revenue methods are also summarized. The importance of understanding elasticity for business decisions and policymaking is highlighted.

1. PresentationOnELASTICITY OFDEMAND

2. Prepared By Vyas Harshal

3. Definition Of Price Elasticity Of DemandThe 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. Kinds Of Price Elasticity Of DemandPerfectly elastic demandRelatively elastic demandElasticity of demand equal to utilityRelatively inelastic demandPerfectly inelastic demand Let Us See Some Views On Them

5. Perfectly elastic demandyWhen the demand for a product changes –increases or decreases even when there is no change in price, it is known as perfect elastic demand.Perfectly elastic demand curvePRICEDD0x

6. Relatively elastic demandyWhen the proportionate change in demand is more than the proportionate changes in price, it is known as relatively elastic demand.PRICERelatively elastic demand curveDD0xdemand

7. Elasticity of demand equal to utilityWhen the proportionate change in demand is equal to proportionate changes in price, it is known as unitary elastic demandyDPRICEElasticity of demand equal to utility curveDx0demand

8. Relatively inelastic demandYWhen the proportionate change in demand is less than the proportionate changes in price, it is known as relatively inelastic demandDRelatively inelastic demand curvePRICEDXOdemand

9. Perfectly inelastic demandYDWhen a change in price, howsover large, change no changes in quality demand, it is known as perfectly inelastic demandPerfectly inelastic demand curvePRICEDX0demand

10. ALL KINDS OF DEMAND CAN BE SHOWN IN ONE DIAGRAM AS FOLLOWYWHERED1) Perfectly elastic demandD2)Relatively elastic demandD3)Elasticity of demand equal to utilityD4)Relatively inelastic demandD5)Perfectly inelastic demandPRICEDD1D2D3D4D5X0DEMAND

11. Measurement Of Price Elasticity Of Demand There are main methods likePercentage method or proportionate methodTotal outlay method or total revenue methodGeometric method or point method Arc elasticity of demand

12. 1 Percentage method or proportionate method

13. (5) Factors Affecting Price Elasticity Of Demand

14. Factors Affecting Price Elasticity Of DemandNature of the CommodityAvailability of SubstitutesVariety of uses of commodityPostponementInfluence of habits Proportion of Income spent on a commodityRange of prices

15. Factors Affecting Price Elasticity Of DemandIncome GroupsElements of time Pattern of income distribution

16. (6) Practical Importance of the Concept of Price Elasticity Of Demand

17. Practical Importance of the Concept of Price Elasticity Of DemandThe concept is helpful in taking Business DecisionsImportance of the concept in formatting Tax Policy of the governmentFor determining the rewards of the Factors of ProductionTo determine the Terms of Trades Between the Two Countries

18. Practical Importance of the Concept of Price Elasticity Of DemandDetermination of Rates of Foreign ExchangeFor Nationalization of Certain Industries In economic Analysis ,the concept of price elasticity of demand helps in explaining the irony of poverty in the midst of plenty.

19. (7) Income Elasticity Of Demand

20. Types Of Income Elasticity Of DemandPositive Income elasticity of demandNegative Income elasticity of demandZero Income elasticity of demand

21. Positive Income elasticity of demandYDPADIncomeBSOXQuantity Demanded

22. Positive Income elasticity of demandIncome Elasticity Equal to Unity or OneIncome Elasticity Greater Than Unity Or One Income Elasticity Less Than Unity or One

23. Negative Income elasticity of demandPricePATotalRevenueBSQuantity Demanded (000s)

24. Zero Income elasticity of demandYDIncomeOXDQuantity Demanded

25. All Income Graphs RepresentationYFEDCIncomeBAXOQuantity Demanded

26. Measurement Of Income Elasticity Of DemandProportionate change in DemandIncome Elasticity Of Demand =Proportionate change in Incomei.e.∆q∆ y+Income Elasticity Of Demand =QY

27. Measurement Of Income Elasticity Of DemandHere , ∆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

28. Measurement Of Income Elasticity Of DemandThus Income Elasticity of Demand = = (5/20) + (500/2500) = 1.5 therefore here the IED is 1.5 which is more than one. ∆q∆ y+YQ

29. Factors Affecting Income Of DemandIncome Itself Only.Price Of the Commodity

30. Importance Of the Concept of Income Elasticity Of DemandIn production planning and managementIn forecasting demand when change in consumers income is expectedIn classifying goods as normal and inferiorIn expansion and contraction of the firm by the figure of income elasticity of demandMarkets situations could be studied with the help of IED

31. (8) Elasticity Of Substitution The selection between two product or thing is called substitution So Elasticity of Substitution measures the rate at which the particular product is substituted .Thus EOS is the degree to which one product could be substituted in context of price and proportion

32. Elasticity Of SubstitutionElasticity of Substitution = Proportionate change in the quantity ratios of goods x & y DIVIDED BY Proportionate change in the price ratios of goods x & y.

33. Types of Elasticity Of SubstitutionZero Elasticity of Substitution.Infinite Elasticity Of SubstitutionElasticity of Substitution greater than unityor1Elasticity of Substitution is equal to oneElasticity of Substitution is less than one

34. Types of Elasticity Of Substitution on GraphYE4E3Change in QUANTITIY ratio of good x & yE5E2E1XOChange in PRICE ratio of good x & y

35. Relationship Between Price Elasticity, Income Elasticity and Substitution Elasticity As Price is depended on income and substitution effect similarly Price Elasticity is depended on Income Elasticity an Substitution Elasticity .These relationship can be represented byEp = Kx E1 + ( 1 – Kx ) es

36. Price elasticity of demand depends on:Proportion of income spent on particular good say X.Income elasticity of demand.Elasticity of substitution.Proportion of income spent on product other than X.

37. Cross Elasticity of DemandCross 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 productE.g. if the X tea demand reduces tremendously than it effect could be seen in demand of sugar and milk.

38. Types of Cross Elasticity of DemandCross Elasticity of Demand Equal to Unity or One Cross Elasticity of Demand Greater than Unity or oneCross Elasticity of demand less than unity or one

39. Measurement Cross Elasticity of DemandProportionate change in Demand for product XCross Elasticity of Demand =Proportionate change in Price of product Yi.e.∆qx∆p y+Cross Elasticity of Demand =QxPy

40. Cross Elasticity of Demand For Substitutes YDPrice of YDOXDemand for Y

41. Cross Elasticity of Demand For Complementary ProductsYDPrice of YDOXDemand for Y

42. Cross Elasticity of Demand For Neutral ProductsYDPrice of YOXDemand for Y

43. Importance of Cross Elasticity Of DemandThe concept is of very great importance in changing the price of the products having substitutes and complementary goods .In demand forecastingHelps in measuring interdependence of price of commodity .Multiproduct firms use these concept to measure the effect of change in price of one product on the demand of their other product

44. Advertising Elasticity of DemandAdvertising elasticity of demand is the measure of the rate of change in demand due to change in advertising expenditureThe amount of change in demand of goods due to advertisement is known as Advertisement Elasticity of Demand .

45. Advertising Elasticity of DemandProportionate change in Demand for product Advertising Elasticity of Demand =Proportionate change in Advertising expenditurei.e.∆qx∆a÷Advertising Elasticity of Demand =QA

46. Relationship Between Advertising Expenditure and Sales YSSalesSXOAdvertising Expenditure

47. Factors Affecting Advertising Elasticity Of DemandThe stage of the Product’s Market Development .Reaction of market Rival Firms.Cumulative Effect of Past Advertisement.Influence of Other Factors.

48. Importance of the Advertising Elasticity Of Demand in Business DecisionsIt is useful in competitive industries.Though advertisement shifts the demand curve to right path but it also increases the fixed cost of the firm.

49. Limitation of Advertising Elasticity of the DemandThe impact of advertising on sales is different under different conditions, even if other demand determinants are constant.Like wise, it is difficult to establish any co-relationship between advertising expenditure and volume of sales when there counter advertisements by rival firm in the market . The effect on sales depend on what the rivals are doing.

50. Thanking You All

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