MANAGERIAL ECONOMICS PRESESNTATION

TOPIC : PRICE ELASTICITY OF AIR CONDITIONER

Definition : “ Price elasticity of demand is a ratio of proportionate change in the quantity demanded of a
commodity to a given proportionate change in its price “.

ED = percentage change in quantity demanded / percentage change in price

TYPES OF PRICE ELASTICITY OF DEMAND -:

1. Perfectly Elastic Demand: When change in price leads to infinite change in quantity demanded it
is known as perfectly elastic demand. Air conditioner is elastic demand due to the change in
price leads to change in quantity demanded.

Here, EP= ∞
2. Perfectly Inelastic Demand: Irrespective of change in price, demand remains constant it is called
perfectly inelastic demand. In air conditioner inelastic demand does not occurs due to change in
price leads to change in demand.

Here, EP = 0

3. Unitary Elastic Demand: When change in price leads to proportionate change in quantity
demanded then demand is unitary elastic. For e.g. If air conditioner price fall 50% then the
demand will rise by 50% . Therefore Air conditioner is an unitary elasticity.

Here, EP=1

4. Relatively Elastic Demand: Air conditioner is an relatively elastic demand, because when there is
a change in price leads to more than proportionate change in quantity demanded. For e.g. when
air conditioner price goes down by 50% then the demand goes rise by 75%.

Here, EP > 1

5. Relatively Inelastic Demand: Air conditioner is relatively inelastic demand, because when there
is change in price leads to less than proportionate change in quantity demanded is relatively
inelastic demand. For example, if the price of air conditioner increases by 30% and
the demand for the product decreases only by 10%. So it is an relatively inelastic
demand.

Here, EP<1

Determinants of price elasticity of demand -:

 Nature of commodity.
 Durability.
 Substitute goods.
 Complementary goods.
 Income of the consumer.
 Habits of consumer.
 Number of uses of commodity.

For example -:

Voltas Ltd: As India’s largest air conditioning company, Voltas is also one of the most reputed
engineering solution providers specializing in project management .It is the largest Indian ac
company.
Swiss-based Volkart Brothers joined hands with Tata Sons Limited over 6 decades ago to create
Voltas.
Total Sales: Rs7, 631Cr.
Market Cap: 23,066Cr.
ROE: 12.88%.
Sales Growth (3Yrs): 7.59%.
Promoter holding: 30.30%.
Debt to equity: 0.08.

Manish Sharma, President and CEO, Panasonic India and South Asia, said, “We are expecting a
robust demand for cooling appliances in the backdrop of early and hot summer along with a
pent-up demand as last year was a washout for ACs. For the last 3-4 months, we are witnessing
a 25 percent growth in air conditioners and are expecting the trend to continue this season too.