1) Elasticity of demand refers to the responsiveness of demand for a good to changes in factors that determine demand, such as price, income, and price of related goods. 2) There are three main types of elasticity of demand - price elasticity of demand, which measures the responsiveness of quantity demanded to a change in price of the good; income elasticity of demand, which measures the responsiveness to a change in consumer income; and cross elasticity of demand, which measures the responsiveness to a change in price of a related good. 3) Price elasticity of demand can take various forms including perfectly elastic, relatively elastic, unitary, relatively inelastic, and perfectly inelastic depending

1. ELASTICITYOF
DEMAND

2. OURTEAM
ADITYAKANCHANBARAS
ARJITAGRAWAL
BHOOMIJAIN
DIVYANSHIGUPTA
GUNJANDEO

3. Elasticityof Demand
The degree of responsiveness of demand to the
changes in determinants of demand (Price of the
commodity, Income of a Consumer , Price of related
commodity) is known as elasticity of Demand.
Elasticity of Demand is mainly of 3 Types:
(a) Price elasticity of Demand,
(b) Income elasticity of Demand,
(c) Cross elasticity of Demand.

4. 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 price elasticity of demand

5. KindsOf Price Elasticity Of Demand
1) Perfectly elastic demand
2) Relatively elastic demand
3) Unitary elastic demand
4) Relatively inelastic demand
5) Perfectly inelastic demand

6. Perfectlyelasticdemand
P
R
I
C
E
y
0
Perfectlyelastic
demand curve
D D
When the demand for
a product changes
(ie.increases or
decreases) even when
there is no change in
price, it is known as
perfectly elastic
demand.
x
Demand

7. Relativelyelasticdemand
Relativelyelastic
demand curve
P
R
I
C
E
Demand
0 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. UnitaryElasticity of demand
Elasticity of
demandequal
to utility curve
y
x
0 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

9. Relativelyinelasticdemand
Relatively inelastic
demand curve
X
O
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

10. Perfectlyinelasticdemand
Demand
Perfectlyinelastic
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

11. ALLKINDSOFDEMANDCANBESHOWNINONE
DIAGRAMASFOLLOWs
D2
D3
D4
Y
X
0
DEMAND
P
R
I
C
E
D1) Perfectly elastic
demand
D2)Relativelyelastic
demand
D3)Unitary Elasticityof
demand
D4)Relatively inelastic
demand
D5)Perfectlyinelastic
demand
D1
D5

12. FactorsAffectingPriceElasticity Of Demand
• Natureof the Commodity
• Availabilityof Substitutes
• Varietyof uses of commodity
• Postponement
• Influence of habits
• Proportion of Income spent on a commodity
• Range of prices
• IncomeGroups
• Elements of time
• Patternof income distribution

13. IncomeElasticityOf Demand
• In economics, the income elasticity of demand is the
responsiveness of the quantity demanded for a good to a change
in consumer income.
• It is measured as the ratio of the percentage change in quantity
demanded to the percentage change in income.
• Income elasticity of demand can be used as an indicator of
future consumption patterns and as a guide to firms' investment
decisions.
• For example, the "selected income elasticity“ below suggest that
as incomes increase over time,an increasing portion of
consumers' budgets will be devoted to purchasing automobiles
and restaurant meals and a smaller share to tobacco.

14. TypesOf IncomeElasticityOf Demand
• Positive Income elasticity of demand
• Negative Income elasticity of demand
• Zero Income elasticity of demand

15. PositiveIncomeelasticity of demand
Y D
P
A
O X
Quantity Demanded
Income
D
B S

16. PositiveIncomeelasticity of demand
UnitaryIncomeElasticity- The positive income elasticity of demand will be
unitary if the proportionate change in the amount of a product
demanded equals the change in consumer income in due proportion.
IncomeElasticityGreaterThanUnitary- The positive income elasticity of demand
will be more than unitary if the proportionate change in the amount of
a product demanded is higher than the change in consumer income in
due proportion. it is a luxury good or a superior good.
IncomeElasticityLessThanUnitary- If the change in the amount of a product
demanded in due proportion is less than the change in consumer
income in due proportion, positive income elasticity of demand will be
less than unitary ,it is a necessity good.

17. NegativeIncome elasticity of demand
Price
P
A
Total
Revenue
B S
Quantity Demanded
It refers to a condition in which demand for
a commodity decreases with a rise in
consumer income and increases with a fall
in consumer income. Inferior goods are such
commodities.
For example, the demand for millet will
decrease if the income of consumers
increases since they will prefer to purchase
wheat instead of millet. Thus, millet is an
inferior good to wheat for customers. The
downward slope implies that the increase in
income contributes to a fall in demand, and
a decrease in income causes a rise in
demand.

18. ZeroIncomeelasticityof demand
Y
X
O D
D
Quantity Demanded
Income
It corresponds to the situation
when there is no impact of rising
household income on commodity
production. Such goods are
termed essential goods.
For example, a high-income
consumer and a low-income
consumer will need salt in the
same quantity.

19. AllIncomeGraphsRepresentation
O
Y
Income
B
A
C D
E
F
X
QuantityDemanded

20. MeasurementOf IncomeElasticity Of Demand
Proportionate change in Demand
Income Elasticity Of Demand = ----------------------------------------
Proportionate change in Income
Income Elasticity Of Demand =
Q Y
∆q ∆ y
+
• Here , ∆q = Change in the quantity demanded.
• Q= Original quantity demanded.
• ∆y = Change in income.
• Y= Original income.

21. ImportanceOf theConceptof IncomeElasticity OfDemand
• 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

22. CrossElasticityof 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.

23. Where;
● Percentage change in quantity
demanded of X=
● Percentage change in price of Y=
● Thus, mathematically, the cross elasticity
of demand is stated as:
Here;
● ec is the cross elasticity of demand
● QX = Original quantity demanded of product X
● ΔQX = Change in quantity demanded of product X
● Py = Original price of product Y
● ΔPy = Change in the price of product Y

24. Typesof CrossElasticityof Demand
Positive Cross Elasticity of Demand
Negative Cross Elasticity of Demand
Zero Cross Elasticity of Demand

25. Typesof positive CrossElasticityof Demand
• Cross Elasticity of Demand Equal to Unity or
One
• Cross Elasticity of Demand Greater than Unity or
one
• Cross Elasticity of demand less than unity or
one

26. Measurementof CrossElasticity
of Demand
Proportionate change in Price of
product Y
∆qx
Qx
Py
∆py
X
Proportionate change in Demand
for product X
Cross Elasticity of Demand=
Cross Elasticity of Demand =

27. Positivecrosselasticityof demand
When an increase in the
price of a related product
results in an increase in the
demand for the main product
and vice versa, the cross
elasticity of demand is said
to be positive. Cross-
elasticity of demand is
positive in the case of
substitute goods.
Price
of
Y
Demand for Y
O
Y
X
D

28. Price
of
Y
O
Y
X
D
NegativeCrossElasticityof Demand
Demand for Y
D
When an increase in the price
of a related product results in
the decrease of the demand of
the main product and vice
versa, the negative elasticity
of demand is said to be
negative. In complementary
goods, cross elasticity of
goods is negative.

29. Zerocrosselasticity ofdemand
Price
of
Y
O
Y
X
D
Demand for Y
When a proportionate change in
the price of a related product
does not bring any change in the
demand for the main product,
the negative elasticity of
demand is said to be negative.
In simple words, cross elasticity
is zero in case of independent
goods. In this case, it becomes
zero.

30. Importanceof CrossElasticityOf Demand
• The concept is of very great importance in changing the price
of the products having substitutes and complementary goods
.
• In demand forecasting
• Helps in measuring interdependenceof 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

31. AdvertisingElasticityof 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 .

32. AdvertisingElasticityofDemand
Proportionate change in Advertising
expenditure
Proportionate change in Demandfor
product
Advertising Elasticity of Demand
=
Advertising Elasticity of Demand =
Percentage Change in quantity demanded
Percentage Change in advertisement
cost

33. RelationshipBetweenAdvertising AndSales
O X
Y
S
Sales
AdvertisingExpenditure
S

34. FactorsAffectingAdvertisingElasticityOf Demand
• The stage of the Product’s Market
Development .
• Reaction of market Rival Firms.
• Cumulative Effect of Past Advertisement.
• Influence of Other Factors.

35. Importanceof theAdvertising ElasticityOf
Demandin BusinessDecisions
• It is useful in competitive industries.
• Though advertisement shifts the demand
curve to right path but it also increases the
fixed cost of the firm.

36. *****ThankYou*****