Professional Documents
Culture Documents
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A PROJECT OF
ECONOMICS OF EMERGING BUSINESS
(UNDER THE SUPERVISION OF Mrs. MONISHA THAPAR)
ACKNOWLEDGEMENT
Page | 2 I would like to express my deepest appreciation to all those who provided me the possibility to
complete this project. A special gratitude I give to our teacher whose contribution in stimulating
suggestions and encouragement helped me to coordinate my project especially in writing of this
project.
Furthermore I would also like to acknowledge with much appreciation the crucial role of my
teachers who gave the permission to use all required equipment and the necessary material to
complete the project “PRICE ELACTISITY OF DEMOND”. I have to appreciate the guidance
given by other teachers that has improved our presentation skills thanks to their comment and
advices.
INDEX
CONTENT PAGE
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1. INTRODUCTION……………………………………………………………….…04
4. CONCLUSION …………………………...……….……………………………….13
INTRODUCTION
Page | 4 As we have already seen there are many factors that influence the demand for a
business. We have seen how a change in the price of a product will cause a movement
along the demand curve. Similarly, we noted that changes in other factors can cause
the demand curve to shift either to the left or to the right. The owners of a business
often want to know how great the effect of any change will be on the demand for their
product. The degree to which a demand curve reacts to a change in price is the curve's
elasticity. This concept is called elasticity.
INELASTIC DEMAND
Elasticity = 1
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When change in quantity demanded is greater than the change in price, in percentage
term, demand is said to be relatively elastic. The numerical value of relatively elastic
demand is greater than unity and the demand is gradually sloping towards the x-axis
The ability to delay or postpone the purchase of a product is one of the determinants of
elasticity. If the purchase can be delayed, the demand for the product tends to be elastic.
If it cannot be delayed it tends to be inelastic.
For example, since I can wait to buy a new car until the price drops demand will vary
greatly in accordance with price. This product thus would tend to be elastic. Salt on
the other hand is a daily necessity, its purchase cannot be delayed, Thus demand does
not vary greatly with price and the product tends to be inelastic.
If a product has many substitutes, the demand for it tends to be elastic. The fewer
substitutes available for a product, the more inelastic the demand. Note we are talking
about product not brand!
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For example, if the price of coffee were to go up dramatically then many people would
switch to tea, thus a substitute is available. Since this is the case the price is causing
demand to drop. This product would then be considered elastic. Since there is no real
substitute for gasoline of heating oil, demand remains the same regardless of price. These
products are inelastic.
If a product is expensive, and is a large percentage of one's income, then the product
tends to be more elastic. If a product is not a significant portion of the income the product
tends to be more inelastic.
Take a house for example, if prices were to drop, demand would go up alot. A bar of
soap, steak, clothes, since even an expensive product can be readily afforded the change
in price is not a tremendous factor in demand.
Whether the demand for a commodity is elastic or inelastic, more elastic or less elastic
depends upon a wick variety of factors discussed as under:
Possibility of postponement:
If the consumption of the commodity can be postponed the demand for such a
commodity would be elastic that is if the price rises the people will postpone
their consumption till the price falls while on the other hand demand for the
commodity the consumption of which cannot be postpone will possess a
inelastic demand.
Existence of substitutes:
Nature of commodity:
Goods & services which are regarded as necessaries of life have generally inelastic
demand whereas demand for comforts and luxuries are generally elastic.
Page | 9 Severeal uses:
The demand for a commodity is said to be more elastic when it can
be put to a variety of uses. A fall in its price will result in a substantial increase In
its demand.
Time:
In the short period, demand for the commodity is generally less elastic but
it becomes more elastic in the long run.
The demand for the commodity on which the consumer spends only a small
proportion of his income is less elastic.
Habits:
Range of prices:
At a very high range of price the demand for a commodity is generally inelastic
since the commodity is being sold at very high price, a slight fall in price will not
increase the demand. Similarly, the demand for the commodity will be inelastic if it is
being sold at very low price.
However, the demand will be elastic in the middle range of elastic.
SWOT ANALYSIS
S- STRENGTH
W – WEAKNESS
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O – OPPOURTUNITES
T – THREAT
STRENGTH:
Monopoly market:
In the monopoly market the particular firm is sole king of market. The price of
goods are decided by the proprietor, since the demand for the commodity is
inelastic consumers having no option for them, they have to purchase the
commodity even at high price.
Example: If it had only a single manufacturer for salt and salt being a daily necessity,
consumers have to purchase goods even at high price, since the price is being ruled
out by a manufacturer.
HABITS:
DEMAND FOR THE CO MMODITY FOR WHICH CONSUMERS ARE
ACCOUSTOMED IS GENERALLY INELASTIC.
INNOVATION:
POPULATION:
WEAKNESS
SUBISTITUTES:
COMPLIMENTARY GOODS:
OPPOURTINITIES
EXPANSION OF BUSINESS:
COMPETITION:
POSSIBILITY OF POSTPONMENT
CONCLUSION
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THUS IT CAN BE SEEN THAT IT IS A NORMAL HUMAN TENDENCY OF
THE CONSUMERS TO PURCHASE THE COMMODITY WHEN THE PRICE
IS LOW & TO POSTPOND IT’S DEMAND WHEN THERE IS RISE IN PRICE
IN CASE OF ELASTIC GOODS.
THUS IT CAN BEEN SEEN THAT IN THE SHORT RUN THE DEMAND FOR
THE PRODUCT IS INELASTIC AND IN LONG RUN THE DEMAND IS
ELASTIC