It deals Elasticity of demand

1. •Elasticity of Demand: Meaning - Types of Elasticity of
Demand Types of Price Elasticity of Demand
•Methods of Measuring Elasticity of Demand
•Uses of Elasticity of Demand

2. Elasticity of Demand
Elasticity means sensitiveness or responsiveness of demand to the
change in price.
The law of demand indicates only direction of change in quantity
demanded in responses to change in price. This does not tell us how
much or to what extent the quantity demanded in response to a change
in its price.
The concepts of elasticity of demand refers to the degree of
responsiveness of quantity demanded of a good to a change in its
price,consumer’s,income, price related goods and advertisement.
The price elasticity of demand (sometimes simply called Price
Elasticity)measures how much the quantity demanded of a good
changes when its price changes.

5. 1. Price Elasticity of Demand
The price elasticity of demand, commonly known as the elasticity of demand
refers to the responsiveness and sensitiveness of demand for a product to the
changes in its price.
ΔQ = Q1 –Q0, ΔP = P1 – P0, Q1= New quantity, Q2= Original quantity, P1 = New price, P0 = Original price.

6. 2. Income Elasticity of Demand
The degree of responsiveness of a change in demand for a product due to the
change in the income is known as income elasticity of demand.
The formula to compute the income elasticity of demand is

7. 3. Cross Elasticity of Demand:
The cross elasticity of demand refers to the change in quantity demanded for
one commodity as a result of the change in the price of another commodity. This
type of elasticity usually arises in the case of the interrelated goods such as
substitutes and complementary goods.
The cross elasticity of demand for goods X and Y can be expressed as:

8. 4. Advertising Elasticity of Demand
The change in the demand as a result of the change in advertisement and other
promotional expenses is called as the advertising elasticity of demand. It can be
expressed as:

10. 1. Perfectly Elastic Demand (Ep = ∞)

11. 2. Perfectly Inelastic Demand (Ep =0)

12. 3. Relatively Elastic Demand (1 to ∞):

13. 4.Relatively Inelastic Demand (0-1):

14. Unitary Elastic Demand (Ep =1):

16. Methods of Measuring Elasticity of Demand
The Percentage Method
 Total Outlay Method
Point or Geometrical Elasticity

17. The Percentage Method
According to this method, price elasticity of demand is measured by dividing the percentage change in
quantity demand by the percentage change in price.

19. Point or Geometrical Elasticity

20. Uses of Elasticity of Demand
Price fixation
Price Discrimination
International trade
Nationalization
Public finance
Fixation of wages for labourers
Helps to Explain the “ Paradox of Plenty”
Determination of volume of output

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