Elasticity of Demand

ECONOMICS OF EMERGING BUSINESS April 5, 2019
DR. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERISTY

LUCKNOW
Page | 1
A PROJECT OF
ECONOMICS OF EMERGING BUSINESS
(UNDER THE SUPERVISION OF Mrs. MONISHA THAPAR)
PRICE ELACTISITY OF DEMOND
SUBMITTED TO: SUBMITTED BY:
Mrs. MONISHA THAPAR ABHISHEK VERMA
GUEST FACULTY, ROLL NO.143070005
FACULTY OF LAW B.COM.LLB (HONS.)
DSMNRU, LUCKNOW 10TH SEMESTER

ACKNOWLEDGEMENT
Page | 2 I would like to express my deepest appreciation to all those who provided me the possibility to
complete this project. A special gratitude I give to our teacher whose contribution in stimulating
suggestions and encouragement helped me to coordinate my project especially in writing of this
project.
Furthermore I would also like to acknowledge with much appreciation the crucial role of my
teachers who gave the permission to use all required equipment and the necessary material to
complete the project “PRICE ELACTISITY OF DEMOND”. I have to appreciate the guidance
given by other teachers that has improved our presentation skills thanks to their comment and
advices.

INDEX
CONTENT PAGE
Page | 3
1. INTRODUCTION……………………………………………………………….…04
2. TYPES OF ELACTSITY OF DEMOND…………………………………..……..05
3. FACTORS INFLAUACING ELACTISITY OF DEMOND…………………….08
4. CONCLUSION …………………………...……….……………………………….13

INTRODUCTION
Page | 4 As we have already seen there are many factors that influence the demand for a
business. We have seen how a change in the price of a product will cause a movement
along the demand curve. Similarly, we noted that changes in other factors can cause
the demand curve to shift either to the left or to the right. The owners of a business
often want to know how great the effect of any change will be on the demand for their
product. The degree to which a demand curve reacts to a change in price is the curve's
elasticity. This concept is called elasticity.
Elasticity of demand is the economist’s way of talking about how responsive

consumers are to price changes. Elasticity varies among products because some products
may be more essential to the consumer. Products that are necessities are more insensitive
to price changes because consumers would continue buying these products despite price
increases. Conversely, a price increase of a good or service that is considered less of a
necessity will deter more consumers because the opportunity cost of buying the product
will become too high.. It is the degree to which changes in price effect in changes in
demand. One typical application of the concept of elasticity is to consider what happens
to consumer demand for a good (for example, apples) when prices increase. As the price
of a good rises, consumers will usually demand a lower quantity of that good, perhaps by
consuming less, substituting other goods, and so on. The greater the extent to which
demand falls as price rises, the greater the price elasticity of demand. Conversely, as the
price of a good falls, consumers will usually demand a greater quantity of that good, by
consuming more, dropping substitutes, and so forth. However, there may be some goods
that consumers require, cannot consume less of, and cannot find substitutes for even if
prices rise (for example, certain prescription drugs). Another example is oil and its
derivatives such as gasoline.
The term price elasticity of demand is used to measure the responsiveness of

demand to a change in the price of that product. The value of the price elasticity of demand
can be calculated by using the following formula.

Price elasticity of demand = % change in quantity demanded

% change in price
From the formula we derive two possibilities

Page | 5
ELASTIC DEMAND
INELASTIC DEMAND
 TYPES OF ELASTICITY OF DEMAND
Following are the types of price elasticity of demand:
PERFECTLY ELASTIC DEMAND
PERFECTLY INELASTIC DEMAND
UNITARY ELASTIC DEMAND
RELATIVELY ELASTIC DEMAND
RELATIVELY INELASTIC DEMAND
 UNITARY ELASTIC DEMAND
Elasticity = 1
This case is referred to as unitary elasticity. The change in quantity demanded is in

the same proportion as the change in price. A change in price in either direction
therefore would result in no change in revenue.

Page | 6
 RELATIVELY ELASTIC DEMAND
When change in quantity demanded is greater than the change in price, in percentage
term, demand is said to be relatively elastic. The numerical value of relatively elastic
demand is greater than unity and the demand is gradually sloping towards the x-axis

 Relatively inelastic demand
When percentage change in quantity demanded of a commodity is less than the

Page | 7 percentage change in prices demand is said to be relatively inelastic. The numerical
co-efficient relatively inelastic demand is less than one. In this case, the demand
Curve is steeply sloping downwards.
 The elasticity of demand can usually be estimated by examining the answers to

three key questions. All three answers do not have to be the same in order to
determine elasticity, and in some cases the answer to a single question is so
important that it alone might dominate the answers of the other two.
1. Can the purchase be delayed
The ability to delay or postpone the purchase of a product is one of the determinants of
elasticity. If the purchase can be delayed, the demand for the product tends to be elastic.
If it cannot be delayed it tends to be inelastic.
For example, since I can wait to buy a new car until the price drops demand will vary
greatly in accordance with price. This product thus would tend to be elastic. Salt on
the other hand is a daily necessity, its purchase cannot be delayed, Thus demand does
not vary greatly with price and the product tends to be inelastic.

2. Are adequate substitutes available
If a product has many substitutes, the demand for it tends to be elastic. The fewer
substitutes available for a product, the more inelastic the demand. Note we are talking
about product not brand!
Page | 8
For example, if the price of coffee were to go up dramatically then many people would
switch to tea, thus a substitute is available. Since this is the case the price is causing
demand to drop. This product would then be considered elastic. Since there is no real
substitute for gasoline of heating oil, demand remains the same regardless of price. These
products are inelastic.
3. Does the purchase use a large portion of income
If a product is expensive, and is a large percentage of one's income, then the product
tends to be more elastic. If a product is not a significant portion of the income the product
tends to be more inelastic.
Take a house for example, if prices were to drop, demand would go up alot. A bar of
soap, steak, clothes, since even an expensive product can be readily afforded the change
in price is not a tremendous factor in demand.
FACTORS INFLUCING ELASTICITY OF DEMAND
Whether the demand for a commodity is elastic or inelastic, more elastic or less elastic
depends upon a wick variety of factors discussed as under:
Possibility of postponement:
If the consumption of the commodity can be postponed the demand for such a
commodity would be elastic that is if the price rises the people will postpone
their consumption till the price falls while on the other hand demand for the
commodity the consumption of which cannot be postpone will possess a
inelastic demand.
Existence of substitutes:
The demand for a commodity is more elastic if it has a number of substitutes.

A small rise in the price of such commodity will induce the consumers to go for its
substitutes.

Nature of commodity:
Goods & services which are regarded as necessaries of life have generally inelastic
demand whereas demand for comforts and luxuries are generally elastic.
Page | 9 Severeal uses:
The demand for a commodity is said to be more elastic when it can
be put to a variety of uses. A fall in its price will result in a substantial increase In
its demand.
Time:
In the short period, demand for the commodity is generally less elastic but
it becomes more elastic in the long run.
Proportion of income spends:
The demand for the commodity on which the consumer spends only a small
proportion of his income is less elastic.
Habits:
The demand for a commodity to which the consumers are

accustomed is generally inelastic.
Range of prices:
At a very high range of price the demand for a commodity is generally inelastic
since the commodity is being sold at very high price, a slight fall in price will not
increase the demand. Similarly, the demand for the commodity will be inelastic if it is
being sold at very low price.
However, the demand will be elastic in the middle range of elastic.

SWOT ANALYSIS
S- STRENGTH
W – WEAKNESS
Page | 10
O – OPPOURTUNITES
T – THREAT
STRENGTH:
Monopoly market:
In the monopoly market the particular firm is sole king of market. The price of
goods are decided by the proprietor, since the demand for the commodity is
inelastic consumers having no option for them, they have to purchase the
commodity even at high price.
Example: If it had only a single manufacturer for salt and salt being a daily necessity,
consumers have to purchase goods even at high price, since the price is being ruled
out by a manufacturer.
HABITS:
DEMAND FOR THE CO MMODITY FOR WHICH CONSUMERS ARE
ACCOUSTOMED IS GENERALLY INELASTIC.
EXAMPLE: FOR A CHAINSMOKER, A RISE IN PRICE FOR CIGRATTES

WOULD NOT EFFECT HIS CONSUMPTION OF CIGRATTES, SINCE HE IS
ADDICTED TO SMOKING.
INNOVATION:
NEW INVENTIONS AND INNOVATIONS LEAD TO

INTRODUCTION OF NEW PRODUCTS IN THE MARKET, MAKING
THE NEW PRODUCT OBSELETE.
EXAMPLE: IN CASE OF MOBILE COMPANIES NEW MODELS

ARE BEING INTRODUCED IN MARKET WHICH MAKES THE OLD
PRODUCTS OBSLETE.

POPULATION:
AS THE POPULLATION INCREASES THE DEMAND FOR

PRODUCTS ALSO INCREASES AND THE FIRMS CAN MAKE MORE
Page | 11 AND MORE PROFIT.
WEAKNESS
SUBISTITUTES:
IF THE PRICE OF THE COMMODITY RISES PEOPLE TEND TO

GO FOR ITS SUBISTITUTES.
EXAMPLE: IF THE PRICE OF TEA RISES THE DEMAND FOR COFFEE

RISES.
COMPLIMENTARY GOODS:
WHEN THE PRICE OF COMPLIMENTARY GOODS RISES

THE DEMAND FOR ITS PRODUCTS DECREASES.
EXAMPLE: IF THERE IS A RISE IN THE PRICE OF PETROL THERE IS A

DECREASE IN DEMAND FOR AUTOMOBILE VECHILES.
PERFECTLY ELASTIC AND INELASTIC DEMAND.
IT IS NOT PRATICALLY POSSIBLE FOR, DEMAND TO REMAIN

CONSTANT IN CASE OF RISE OR FALL IN PRICE AND WHEN PRICE
IS CONSTANT AND DEMAND IS FLUCTUATING

OPPOURTINITIES
Page | 12 PRODUCT PACKING:
IF THE PACKING OF THE PRODUCT IS ATTRACTIVE, IT

CREATES AN OPPOURTUNITY FOR THE FIRM TO ATTRACT THE
CONSUMERS TOWARDS ITS PRODUCT WHICH MAY HELP THE FIRM
TO INCREASE ITS DEMAND.
RESEARCH AND DEVELOPMENT
THE RESEARCH AND DEVELOPMENT DEPARTMENT OF THE

COMPANY, RESEARCHES AND ANALYSIS THE DEMAND FOR ITS
PRODUCTS, AND DEVELOPS ITS PRODUCT ACCORDING TO
DIFFERENT MARKET DEMAND.
EXPANSION OF BUSINESS:
FOR THE EXPANSION OF BUSINESS, THE FIRMS OR THE

MANUFACTORING UNITS MUST ENTER INTO NEW MARKETS
INORDER TO CREATE THEIR POSITION IN MARKET, WHICH WILL
CREATE AN OPPOURTUNITY FOR FIRM TO INCREASE ITS DEMAND
FOR THE PRODUCT.
COMPETITION:
IN THE COMPETITIVE MARKET, THE FIRM MAY HAVE TO

FACE COMETITION FROM ITS COMPETITIORS. A SLIGHT REDUCTION
IN PRICE OF ANY PRODUCT MAY INDUCE THE CONSUMERS TO GO
FOR OTHER PRODUCT.
POSSIBILITY OF POSTPONMENT
IF THE PRICE OF THE PRODUCT RISES THEN THE CONSU

MERS WILL POSTPOND ITS DEMAND UNTILL THERE IS FALL IN
PRICE.

CONCLUSION
Page | 13
THUS IT CAN BE SEEN THAT IT IS A NORMAL HUMAN TENDENCY OF
THE CONSUMERS TO PURCHASE THE COMMODITY WHEN THE PRICE
IS LOW & TO POSTPOND IT’S DEMAND WHEN THERE IS RISE IN PRICE
IN CASE OF ELASTIC GOODS.
THUS IT CAN BEEN SEEN THAT IN THE SHORT RUN THE DEMAND FOR
THE PRODUCT IS INELASTIC AND IN LONG RUN THE DEMAND IS
ELASTIC
INCASE OF INELASTIC DEMAND THE CONSUMER CANNOT POSTPOND

IT’S DEMAND.

Elasticity of Demand

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Elasticity of Demand

Diunggah oleh

Hak Cipta:

Format Tersedia

ECONOMICS OF EMERGING BUSINESS April 5, 2019

DR. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERISTY

PRICE ELACTISITY OF DEMOND

SUBMITTED TO: SUBMITTED BY:

Mrs. MONISHA THAPAR ABHISHEK VERMA

GUEST FACULTY, ROLL NO.143070005

FACULTY OF LAW B.COM.LLB (HONS.)

DSMNRU, LUCKNOW 10TH SEMESTER

PRICE ELACTISITY OF DEMOND

PRICE ELACTISITY OF DEMOND

2. TYPES OF ELACTSITY OF DEMOND…………………………………..……..05

3. FACTORS INFLAUACING ELACTISITY OF DEMOND…………………….08

PRICE ELACTISITY OF DEMOND