Topic: Elasticity of Demand

Submitted to:
Mrs. Shali

Submitted by:
Krishna Lineswala (2323131)
2BBAF&E B

Submitted on:
6th January 2024

Table of Content
1. Abstract

2. Objective of Case Study

3. Methodology

4. What is Elasticity of Demand

 Price Elasticity of Demand

 Income Elasticity of Demand
 Cross Elasticity of Demand

5. Factors affecting Elasticity of Demand

6. The impact of demand elastic on consumers behaviour

7. Conclusion

8. Bibliography

Abstract
Elasticity of demand is an economic concept that quantifies how responsively the quantity of
an item or service demanded responds to price fluctuations. It clarifies for us how susceptible
customers are to price fluctuations. A change in the price of a commodity affects its demand.
We can find the elasticity of demand, or the degree of responsiveness of demand by
comparing the percentage price changes with the quantities demanded.

Introduction

In economics, demand is defined as the willingness and capacity of customers to buy or

consume a specific good or thing. In addition, the demand determinants contribute
significantly to the explanation of the demand for a certain commodity.

For example, if the price of an item increases, the amount that customers may desire would
likely decrease. Analogously, a drop in an item's cost or selling price will probably cause an
increase in the amount that is needed.

This suggests that there is an inverse relationship between the article's price and the quantity
that customers want to buy.

Objective of Case Study

The primary objectives of this study are

1. Understand the consumer behaviour

2. Impact of price, income on demand

Methodology
Elasticity of demand in India, or in any other country, is typically assessed through empirical
studies and analysis. The methodology involves collecting data, applying mathematical
formulas, and interpreting the results to understand the responsiveness of quantity demanded
to changes in various factors.

What is elasticity of demand?

In economics, the idea of elasticity of demand refers to how sensitively the amount of an item
or service is desired in response to changes in price, income, or other variables. It is
beneficial to comprehend how sensitive customers are to changes in these variables and how
that influences the whole demand for a product. The percentage change in the amount sought
divided by the percentage change in the influencing factor is how elasticity of demand is
stated.

The elasticity of demand formula is:

% Change in Demanded Quantity % Change in Price (or Income, or other factor).

Elasticity is defined as: % Change in Demanded Quantity % Change in Price (or Income, or
Other Factor).

There are several factors that directly or indirectly affects the elasticity

1. Price

2. Income

Price Elasticity
When the percentage change in quantity required exceeds the percentage change in price,
there is elastic demand (PED > 1). Customers with elastic demand are comparatively price-
responsive, meaning that modest changes in price result in correspondingly bigger changes
in the amount required.

When the percentage change in quantity requested is smaller than the percentage change
in price, there is inelastic demand (PED < 1). When there is inelastic demand, quantity
required does not fluctuate greatly in response to price fluctuations, and customers respond
less responsively to price changes.

When the percentage change in quantity demanded and the % change in price are identical,
this is known as unitary elasticity (PED = 1). This suggests that quantity requested responds
proportionately to changes in price.

Income elasticity
When the percentage change in quantity requested is positive in response to a percentage
change in income, the good is considered normal (YED > 0). This suggests that buyers desire
more of the commodity as their income levels rise.

When the percentage change in quantity requested is negative in response to a percentage

change in income, the good is considered inferior (YED < 0). When customers' incomes
increase, they often place a lower demand for inferior items.

Cross elasticity
Substitute Goods (XED > 0): Products for which there is a positive correlation between the
percentage change in quantity required and the percentage change in price. This suggests that
the products are equivalent, and that when one's price rises, so does the demand for the other.

Goods that are Complementary (XED < 0): These occur when there is a negative correlation
between the percentage change in quantity requested for one commodity and the percentage
change in price of another good. When two items are used in tandem, their prices usually rise,
which reduces demand for the complementary good.

Analysis (The impact of elasticity of demand in consumer behaviour and

worldwide)
1. Price Sensitivity:

In India, customers' sensitivity to prices varies greatly because of disparities in income.

Groups with lower incomes may have higher elasticity of consumption for necessities and are
more price sensitive. However, for some luxury items, demand elasticity could be low.

• China: In light of the country's expanding middle class and rising disposable income,
consumers there could be less price sensitive to some goods. Customers could be prepared to
spend more for branded or high-end goods.

2. Consumer buying Behaviour:

• India: Price fluctuations can exert a noteworthy influence on consumer buying patterns.
Customers may modify their consumption levels of necessities in response to price
fluctuations. On the other hand, variations in income levels may have a greater impact on
discretionary expenditure.

• China: More discretionary expenditure is probably going to happen as the country's

economy expands. Customers could be less sensitive to price adjustments for some products,
particularly luxury or status-related items.

3. Implications for business:

• India: Businesses must adjust to cater to markets with different degrees of price sensitivity.

Considering discounts and promotions as well as providing items at various price points may
be successful tactics.

• China: To appeal to a rising consumer base prepared to pay for quality and prestige,
businesses can concentrate on product uniqueness and brand promotion.

Conclusion
An elasticity of demand study's conclusion should include a summary of the main
conclusions, a discussion of the consequences, and suggestions for how firms, policymakers,
and other stakeholders may use the elasticity analysis to guide their decision-making. Talk
about how pricing tactics might be influenced by the elasticity data. Lowering prices for
commodities with elastic demand may cause a correspondingly higher rise in quantity
desired, which might boost overall income. On the other hand, price adjustments may have
less of an effect on quantity sought for inelastic items. Examine how revenue optimization
may benefit from an understanding of elasticity.

Bibliography

1. https://ukdiss.com/examples/domestic-e-commerce-market-indiachina.php

2. https://www.ibef.org/industry/ecommerce

3. https://www.trade.gov/country-commercial-guides/china-ecommerc

4. quora.com