MEGHNAD SAHA INSTITUTE OF TECHNOLOGY

NAME – TANMAY DEY

R0LL- 14201321092
SUBJECT – ENGINEERING ECONOMICS, ESTIMATION
AND COSTING
TOPIC – CONCEPT OF PRICE AND INCOME ELASTICITY
STREAM – CIVIL ENGINERING
YEAR – 3 RD YEAR SECTION – B
PRICE- price, the amount of money that has to be paid to acquire a given product.
Insofar as the amount people are prepared to pay for a product represents its value, price
is also a measure of value.
It follows from the definition just stated that prices perform an
economic function of major significance. So long as they are not artificially controlled,
prices provide an economic mechanism by which goods and services are distributed
among the large number of people desiring them.

A price is the (usually not negative) quantity of payment or compensation given by one
party to another in return for goods or services. In some situations, the price of
production has a different name. If the product is a "good" in the commercial exchange,
the payment for this product will likely be called its "price". However, if the product is
"service", there will be other possible names for this product's name. For example, the
graph on the bottom will show some situations [1] A good's price is influenced by
production costs, supply of the desired item, and demand for the product. A price may be
determined by a monopolist or may be imposed on the firm by market conditions.
INCOME ELASTICITY- Elasticity is the measurement of how responsive an economic
variable is to a change in another. Responsiveness of household to change in Prices and Income.It Measures
the responsiveness in terms of direction as well as magnitude of change.To what extent demand is increasing
due to change in price or income.
Income elasticity of demand refers to the sensitivity of the quantity
demanded for a certain good to a change in the real income of consumers who buy this good.The formula for
calculating income elasticity of demand is the percent change in quantity demanded divided by the percent
change in income. With income elasticity of demand, you can tell if a particular good represents a necessity
or a luxury.
Income elasticity of demand is an economic measure of how responsive the
quantity demanded for a good or service is to a change in income.
The formula for calculating income elasticity of demand is the percentage
change in quantity demanded divided by the percentage change in income.
Businesses use the measure to help predict the impact of a business cycle
on sales.
UNDERSTANDING INCOME ELASTICITY-Income elasticity of demand measures the
responsiveness of demand for a particular good to changes in consumer income.The higher the income
elasticity of demand for a particular good, the more demand for that good is tied to fluctuations in
consumers' income. Businesses typically evaluate the income elasticity of demand for their products to help
predict the impact of a business cycle on product sales.
TYPES OF INCOME ELASTICITY OF DEMAND-There are
five types of income elasticity of demand:
HIGH: A rise in income comes with bigger increases in the quantity demanded.
UNITARY: The rise in income is proportionate to the increase in the quantity
demanded.
LOW: A jump in income is less than proportionate to the increase in the quantity
demanded.
ZERO: The quantity bought/demanded is the same even if income changes.
NEGATIVE: An increase in income comes with a decrease in the quantity
demanded.
INCOME ELASTICITY OF DEMAND MEASUREMENT-
following formula is used:
Income Elasticity of Demand = % Change in Demand Quantity / % Change in Income of
Consumer
Where:% Change in Demand Quantity = Change in Demand Quantity / Original
Demand Quantity% Change in Income of Consumer = Change in Income of Consumer /
Original Income of Consumer
PRICE ELASTICITY OF SUPPLY-Income Elasticity of Demand
MeasurementThe following formula is used:Income Elasticity of Demand = %
Change in Demand Quantity / % Change in Income of ConsumerWhere:%
Change in Demand Quantity = Change in Demand Quantity / Original Demand
Quantity% Change in Income of Consumer = Change in Income of Consumer /
Original Income of Consumer