MANAGLkIAL

LCCNCMICS
L451lcl1Y
Ol
uM4Nu
Def|n|t|on Cf r|ce L|ast|c|ty Cf Demand
1he change ln Lhe quanLlLy demanded of a
producL due Lo a change ln lLs prlce ls known
as rlce elasLlclLy of demand 1hus Lhe
senslLlveness or responslveness of demand Lo
change ln prlce ls as called elasLlclLy of
demand
|nds Cf r|ce L|ast|c|ty Cf Demand
1) erfecLly elasLlc demand
2) 8elaLlvely elasLlc demand
3) LlasLlclLy of demand equal Lo uLlllLy
4) 8elaLlvely lnelasLlc demand
3) erfecLly lnelasLlc demand
LeL us See Some vlews Cn 1hem
erfect|y e|ast|c demand
P
R

C
E
y
0 x
Perfectly elastic
demand curve
D
D
Jhen Lhe
demand for a
producL changes
lncreases or
decreases even
when Lhere ls no
change ln prlce
lL ls known as
perfecL elasLlc
demand
8elaLlvely elasLlc demand
Relatively elastic
demand curve
P
R

C
E
demand
0 x
y
D
D
Jhen Lhe
proporLlonaLe
change ln
demand ls more
Lhan Lhe
proporLlonaLe
changes ln
prlce lL ls
known as
relaLlvely elasLlc
demand
L|ast|c|ty of demand equa| to ut|||ty
Elasticity of
demand equal
to utility curve
y
x
0
demand
P
R

C
E
D
D
Jhen Lhe
proporLlonaLe
change ln
demand ls equal
Lo proporLlonaLe
changes ln prlce
lL ls known as
unlLary elasLlc
demand
8elaLlvely lnelasLlc demand
Relatively inelastic
demand curve
X
O
Y
demand
D
D
P
R

C
E
Jhen Lhe
proporLlonaLe
change ln demand
ls less Lhan Lhe
proporLlonaLe
changes ln prlce lL
ls known as
relaLlvely lnelasLlc
demand
erfecLly lnelasLlc demand
demand
D
D
Perfectly inelastic
demand curve
0
Y
X
P
R

C
E
Jhen a change ln
prlce howsover
large change no
changes ln quallLy
demand lL ls known
as perfecLly lnelasLlc
demand
ALL INDS CI DLMAND CAN 8L SnCWN
IN CNL DIAGkAM AS ICLLCW

1
2
3
4
3
?
x 0
LMAn

8
l
C
L
JL8L
1) erfecLly elasLlc
demand
2)8elaLlvely elasLlc
demand
3)LlasLlclLy of demand
equal Lo uLlllLy
4)8elaLlvely lnelasLlc
demand
3)erfecLly lnelasLlc
demand
INCOME ELSTICITY OF
DEMAND:
It reIers to the quantity demanded oI a
commodity in response to give change
in income oI thew consumer.
Edi or proportionate change in
quantity demanded Ior product x/ oI
proportionate change in income.
@ypes Cf Income L|ast|c|ty Cf Demand
oslLlve lncome elasLlclLy of demand
negaLlve lncome elasLlclLy of demand
Zero lncome elasLlclLy of demand
os|t|ve Income e|ast|c|ty of demand

S
C x CuanLlLy emanded
l
n
c
o
m
e
os|t|ve Income e|ast|c|ty of demand
lncome LlasLlclLy Lqual Lo unlLy or Cne
lncome LlasLlclLy CreaLer 1han unlLy Cr
Cne
lncome LlasLlclLy Less 1han unlLy or Cne
Negat|ve Income e|ast|c|ty of demand
P
r
i
c
e
P
B
A
S
Total Revenue
Quantity Demanded (000s)
ero Income e|ast|c|ty of demand
Y

Quantity Demanded
I
n
c
o
m
e
A|| Income Graphs kepresentat|on
C

I
n
c
o
m
e
A
8
C
D
L
I
k
uant|ty Demanded
Measurement Cf Income L|ast|c|ty Cf
Demand
Income L|ast|c|ty Cf Demand
roport|onate change |n Demand
roport|onate change |n Income
|e
Income L|ast|c|ty Cf Demand
q

y
+
Measurement Cf Income L|ast|c|ty Cf
Demand
ere q Change ln Lhe quanLlLy demanded
C Crlglnal quanLlLy demanded
y Change ln lncome
? Crlglnal lncome
lor eg when lncome of Lhe consumer
2300/ he purchases 20 unlLs of x when
lncome 3000/ he purchases 23 unlLs of x
Measurement Cf Income L|ast|c|ty Cf
Demand
1hus
lncome LlasLlclLy of emand

(3/20) + (300/2300)
13
Lherefore here Lhe lL ls 13 whlch ls more
Lhan one
q

y
+
Cross L|ast|c|ty of Demand
Cross e|ast|c|ty of demand express a
re|at|onsh|p between the change |n the
demand for a g|ven product |n response to a
change |n the pr|ce of some other product
Lg lf Lhe x Lea demand reduces
Lremendously Lhan lL effecL could be seen ln
demand of sugar and mllk
@ypes of Cross L|ast|c|ty of Demand
Cross LlasLlclLy of emand Lqual Lo unlLy or
Cne
Cross LlasLlclLy of emand CreaLer Lhan unlLy
or one
Cross LlasLlclLy of demand less Lhan unlLy or
one
Measurement Cross L|ast|c|ty of
Demand
roport|onate change |n Demand
for product k
roport|onate change |n r|ce of
product
|e
qx
x y
p y
+
Cross L|ast|c|ty of Demand
Cross L|ast|c|ty of Demand
Cross L|ast|c|ty of Demand Ior
Subst|tutes

r
|
c
e

o
f

Demand for
C

k
D
D
Cross L|ast|c|ty of Demand Ior
Comp|ementary roducts

r
|
c
e

o
f

k
D
D
Demand for
Cross L|ast|c|ty of Demand Ior Neutra|
roducts

r
|
c
e

o
f

k
D
Demand for
Advert|s|ng L|ast|c|ty of Demand
Advert|s|ng e|ast|c|ty of demand |s the
measure of the rate of change |n demand
due to change |n advert|s|ng expend|ture
1he amounL of change ln demand of goods
due Lo adverLlsemenL ls known as
AdverLlsemenL LlasLlclLy of emand
Advert|s|ng L|ast|c|ty of Demand
roport|onate change |n Demand
for product
roport|onate change |n Advert|s|ng
expend|ture
|e
qx
A
a

Advert|s|ng L|ast|c|ty of Demand

Advert|s|ng L|ast|c|ty of Demand
..,.. . ~..
%