MANEGERIAL ECONOMICS TERM PAPER

Different types of price elasticity with real world examples:

Price elasticity of demand is to measure used to show the
responsiveness, or elasticity, of the quantity demanded of a good or service to a change in
its price when nothing but the price changes. More precisely, it gives the percentage change
in quantity demanded in response to a one percentage change in Price. It can expressed as
Price elasticity of demand= %change in quantity demanded/% change in price
Methods of calculating price elasticity:
1. Point Price elasticity of demand
2. Arc elasticity

POINT PRICE ELASTICITY OF DEMAND:

The point price elasticity of demand is used to determine the change in
demand within the same demand curve, very small amount of change in demand is
measured through point price elasticity of demand.
Formula

ARC ELASTICITY:
Arc elasticity gives an average elasticity for the section of actual demand
curve that is the arc of curve between two points.
Formula

Types of price elasticity of demand:

1. Perfectly elastic demand
2. Perfectly Inelastic demand
3. Unitary Elastic demand
4. Relatively Elastic demand
5. Relatively Inelastic demand.

Perfectly Elastic demand (Ed=Infinity)

 The demand is said to be perfectly elastic when the quantity demanded increases
or decreases infinitely with no change in price. The Price is constant So it is also known as
Infinite elasticity. It does not have any importance because it is rarely found in real life.

Coco Cola for Perfectly Elastic Demand:

Perfectly elastic demand means, the price will be constant, but the demand of that product
differs. The price of Coco- cola is 20rs. But the demand depends on the seasons. In summer
season the demand for coco cola will be more and in winter season the demand will be less.
So irrespective of the Price, the demand of Coco-Cola changes.

Perfectly Inelastic demand (Ed=0)

A perfectly Inelastic demand indicates that there is no change in quantity
demand even with a change in Price. The demand does not change with the change in Price.
So the demand is said to be perfectly Inelastic.
Water Cans for Perfectly Inelastic demand:
Perfectly Inelastic demand means that, there will be no change In demand with a change in
Price. In case of Water cans, If, a water can costs 40rs for 20 litres. After few months the
same 20 litre can may increase or decrease its price to 30rs or 50rs. Even though there is a
variation in price there will not be any variation in the quantity demanded by the consumer.

Unitary Elastic Demand (Ed=1)

Unitary elastic demand means that the percentage change in demand bring
a percentage change in price. In such type of demand, 1% change in demand indicates 1%
change in price.
Mobiles for Unitary elastic demand:
Unitary elasticity of demand states that the percentage change in price of a product will
indicate the more percentage change in quantity demanded. If we consider electronics like
camera’s, If the price of a Sony Camera decreases by 10%, the quantity demanded increases
accordingly and If the price increases then quantity demanded decreases.
Relatively Elastic Demand (Ed>1)
A demand is said to be Relatively Inelastic if the percentage change in
demand is more than the percentage change in Price. So there is a greater change in
demand for a smaller change in product. It is also called highly elastic demand.

Gold for Relatively elastic demand:

Relatively elastic demand states that, percentage increase in price of one commodity
indicates percentage increase in demand of other commodity. In case of two wheelers, If a
bike costs around 40000 to 50000 and if the price increases to 60000, the consumers may
shift to other brand which costs less than 60000.

Relatively Inelastic Demand (Ed<1)

 A demand is said to be Relatively Inelastic if the percentage change in
demand is less when compared to percentage change in price. So there will be a small
change in demand with greater change In price.

Medicines for relatively Inelastic demand:

Relatively Inelastic demand means that the demand does not change much
with the change in price. In case of medicines, the consumers cannot control their purchases
depending upon their prices. Therefore, price increase or decrease would not show much
effect on the demand. So, if the price of one medicine increases there is a very little scope
that the demand of that medicine decreases.
Real World Examples for changes in revenue:
BUS RIDERSHIP IN CHENNAI

In Chennai in the year 2018, there was an increase in ticket prices. All the bus
drivers went on a protest for hike in their salary by stopping the bus services in the city for
around 15 days. Because of this, there is a lot of decrease in revenue. To cover this loss,
government has increased Ticket prices of normal buses to 15rs and prices of AC buses to
50rs.So People stopped using bus service. Due to this the yearly ridership fell from 18068
lakhs in 2013-14 to 15186 lakhs in 2017-18.
By Group-11
G. Ramya-191330
Sumit Gupta-191290
Aparna-191321
B. Surabhi-191310
Avradeep-191305