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Title: Chapter no 6 micro economics notes
Description: This is chapter no 6 elasticity of demand notes
Description: This is chapter no 6 elasticity of demand notes
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Dr
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06
ELASTICITY
1
Elasticity Of Demand
2
The Law of Demand doesn’t indicate as to
how much the quantity demanded of a good
will fall with the rice in price or
How much responsive demand is to a rise in
price
...
”
Dr
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3
Price Elasticity of Demand
Income Elasticity of Demand
Cross Elasticity of Demand
Dr
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Its also defined as
The ratio of proportionate change in quantity
demanded caused by a given proportionate
change in price
...
Maria,Associate Professor,IBA,UOS
Calculating Price Elasticity
5
Price elasticity of demand is computed by
dividing the percentage change in quantity
demanded of a good by the percentage change
in its price
...
Maria,Associate Professor,IBA,UOS
6
Dr
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Maria,Associate Professor,IBA,UOS
Example
8
Price of a mobile phone sets of a company
increases from Rs
...
28,000
...
Calculate the price elasticity
of demand for mobile sets?
Δ in price in Rs = 28000-20,000=8000
% Δ in price= change in price/Original price*100
% Δ in price=8000/20000=
...
% Δin price=40%
Dr
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% Δ in (Qd)= Δ change in (Qd)/Original
Quantity*100
10000/50,000=
...
5
Ep=
...
Maria,Associate Professor,IBA,UOS
10
OR
Δ In (Qd)/Original Quantity* Original price/ Δ in
price
...
5
This shows Inelastic Demand
...
Maria,Associate Professor,IBA,UOS
11
Degrees Of Price elasticity of
demand
1) Perfectly Elastic demand
2) Perfectly inelastic demand
3) Unitary elastic Demand
4) Elastic demand
5) Inelastic demand
Dr
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Dr
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Maria,Associate Professor,IBA,UOS
14
Perfectly Inelastic demand: When the
quantity demanded of a good doesn’t
change at all to whatever change in
price , the demand is said to be
perfectly inelastic
...
Maria,Associate Professor,IBA,UOS
15
Dr
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Dr
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Dr
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Maria,Associate Professor,IBA,UOS
19
Inelastic Demand: When a change in
price causes a less than
proportionate change in quantity
demanded, demand is said to be
inelastic
...
Maria,Associate Professor,IBA,UOS
20
Dr
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Elastic
Less than infinity but
greater than one
Percentage decrease in
quantity demanded is
exceeds the percentage
increase in price
...
Maria,Associate
Professor,IBA,UOS
completely inelastic
The Percentage decrease
equals the percentage
increase in price
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22
Dr
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When there is a change in the level of
income of a consumer, there is a
change in the quantity demanded of
a good
Dr
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Dr
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Ey =
Dr
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When income increases,
Quantity demanded decreases
...
Maria,Associate Professor,IBA,UOS
27
Dr
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Dr
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The formula for
measuring cross elasticity of demand is;
Exy =
Dr
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When two goods are substitute of each other,
such as Coke and Pepsi, an increase in the
price of one good will lead to an increase in
demand for the other good
...
Maria,Associate Professor,IBA,UOS
31
Complementary goods
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Unrelated Goods:
E
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Maria,Associate Professor,IBA,UOS
Cross Elasticity of Demand
A32 RELATIONSHIP WHEN ITS VALUE WHICH MEANS
IS DESCRIBED AS IS
Perfect
Substitutes
Infinity
Substitutes
Positive, less than If the price of one good
increases , the quantity
infinity
The smallest possible increase
in the price of one good causes
an infinitely large increase in in
the quantity demanded of other
good
...
Independent
Zero
The quantity demanded of one
good remains constant ,
regardless of price of the other
Dr
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33
FACTORS DETERMINING PRICE
ELASTICITY OF DEMAND
Nature of commodities
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Proportion of the income spent on the
good
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Number of uses of a good
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Dr
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IT IS DEFINED AS A MEASURE OF THE
RESPONSIVENESS OF QUANTITY SUPPLIED TO
CHANGE IN PRICE
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Dr
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Maria,Associate Professor,IBA,UOS
36
Perfectly Elastic Supply
...
Dr
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The quantity supplied is totally
unresponsiveness to changes in price
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Unit Elastic Supply
In case of unit elasticity of supply, the
percentage change in price brings about the
same percentage change in quantity
supplied of a good
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Maria,Associate Professor,IBA,UOS
38
Elastic Supply
...
Dr
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When the percentage change in
price of a good causes a smaller
percentage in quantity supplied, the
supply is said to be inelastic
...
Maria,Associate Professor,IBA,UOS
40
DETERMINANTS OF PRICE
ELASTICITY OF SUPPLY
Time period
...
Factor mobility
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Excess supply
...
Agricultural of Industrial products
Dr
Title: Chapter no 6 micro economics notes
Description: This is chapter no 6 elasticity of demand notes
Description: This is chapter no 6 elasticity of demand notes