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INTRODUCTION TO INDIAN ECONOMY 1,11 ELASTICITY OF DEMAND PRESENTED BY AYUSSH SANGHI
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ELASTICITY OF DEMAND o According to the law of demand, o "A fall in the price of a good raises it's quantity demanded." From the above concept l Demand: o From the above concept let's understand Elasticity of o The price elasticity of demand measures the response of change in quantity demanded to change in price.
ELASTICITY OF DEMAND Formula: Elasticity of demand-Percentage change in quantity demanded/ percentage change in price As per law of demand the price elasticity of demand is always negative as price and quantity demanded move in opposite directions. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the priced
ELASTICITY OF DEMAND Conclusion Elastic - Demand for a good is considered to be elastic if the quantity demanded responds substantially to change in the price. Inelastic - Demand is said to be inelastic if the quantity demanded responds slightly to change in the price.
ELASTICITY OF DEMAND o We come to know about how willing consumers are to move away from the good as its price rises The price elasticity of demand for any good measures the consumer behaviour.
ELASTICITY OF DEMAND Thus, the elasticity reflects the many: economic factors o social factors and psychological factors, that shape consumer tastes. O t
WHAT DETERMINES PRICE ELASTICITY OF DEMAND? o There are certain factors that determine price elasticity of demand. In this segment we would discuss each of those in order to understand how Price Elasticity of Demand is affected.
AVAILABILITY OF SUBSTITUTES Goods with substitutes tend to have more elastic demand because it is easier for consumer to switch from that good to others. o Example: Tea and Coffee are substitutes of each other. A small increase in the price of tea, assuming the price of coffee is held constant, causes the quantity of tea sold to fall by a large amount.
NECESSITIES GOODS AGAINST LUXURY GOODS Necessities have inelastic demands as against luxuries which have elastic demands. Example 1: When the price of a visit to a doctor increases, people will not alter the number of times they go to the doctor. Example 2: When the price of LED rises, the quantity of LED's demanded falls substantially. o The reason is that most people view doctor visits as a necessity and LED as a luxury. Whether a good is a necessity or a luxury depends not on the properties of the good but on the preference of the buyer.