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ELASTICITY OF DEMAND How wud u react if one morn u woke up to know that price of tea has risen by 100% or ur Dr prescribes a penicillin for pnemonia &

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Presentation on theme: "ELASTICITY OF DEMAND How wud u react if one morn u woke up to know that price of tea has risen by 100% or ur Dr prescribes a penicillin for pnemonia &"— Presentation transcript:

1 ELASTICITY OF DEMAND How wud u react if one morn u woke up to know that price of tea has risen by 100% or ur Dr prescribes a penicillin for pnemonia & chemist jst raised the price or movie rates go up by 100%

2 Test u r demand sensitivity for the foll goods & services-shoelaces, sugar,electric bulbs, pens, ATM service,mobiles,cigarettes,gold,tvset books,3Bhkflat,4wheeler,coffee,MFs,footwear,as pirin,music player,refrigerator,cold drinks, parle- G,stones. Measures devised to know how consumers alter their purchases in response to changes in various attributes of firms goods & services is elasticity

3 TYPES OF DD ELASTICITY Price- %change in demand/%change in price of the same product Income- %change in demand/%change in consumers income. Cross-% change in demand/% change in price of related product. Promotional-% change in demand/% change in advertising expenses.

4 PRICE ELASTICITY & REVENUE Several firms now focus on Pe in the form of revenue mgt. Price Quantity

5 ARC & POINT ELASTICITY Arc els is the average els over a segment of the demand curve. Arc el=change in dd/change in price.P1+P2/Q1+Q2 Point els relates to els at a particular point on the demand curve. Point el= lower seg/upper seg.

6 Determinants of Ed Pe substitutes Time Nature of product Habit Share in income Ye Business cycles Economic growth Standard of living Ae Product stage Time Rival co Nature of product

7 Business application of Ed Monopolist while using price discrimination Super market, factor pricing, use of machines, taxation policy, foreign trade, product diverfication, pricing strategies etc. Thus computer technology enables firms to keep records of each customer-their likes,dislikes,their sensitivity & so on. A managerwho doesnt understand elasticities is at a comparative disadvantage.

8 Price Elasticity coefficient values CommoditySRLR Butter Petrol Tea Coffee Burger Beer

9 Income elasticity of Demand Milk- 1.07Cigarettes Cars (UK)- 1.63Potatoes (US) Flour (US) Electricity (US)- 1.95

10 Cross- Price elasticiy Tea Coffee 0.03 Margarine butter1.53 Entertainment Food Asian carsEuropean cars 0.61 Automobile Bus transport0.07

11 Consumer surplus- difference between the economic value of a good and the market price the consumer must or actually pays Producer surplus- For each unit supplied the difference between market price and the minimum price producers would expect to supply the unit Social surplus- The sum of consumer surplus and producer surplus


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