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Managerial

Economics

Elasticity Of Demand

PRODUCT HISTORY
The company originally started in Switzerland in 1885, when
Julius Maggi took over his father's mill.
Maggi was the first to bring protein-rich legume meals to the
market, and followed up with a ready-made soup based on
legume meals in 1886
In 1947, Maggi's holding company merged with the Nestl
company.
Nestle is a Swiss company, founded in 1866 by Henri Nestle.
Nestle market its products in 130 countries across the world.
Maggi has been Nestl's flagship culinary brand not only in
India, but globally as well.

LAW OF DEMAND
Demand for a commodity increases when
its price decreases and falls when its prices
rises other things remaining constant.

Concepts Of Elasticity Of Demand

Two Variables are considered while


measuring the elasticity of demand : Demand
Determinants Of Demand
Elasticity Of Demand = percentage change
in quantity demanded
percentage change in
determinant of demand

Types Of Elasticity Of Demand

Price
Elasticity

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Elasticity

Demand

Income
Elasticity

Cross Price
Elasticity

Price Elasticity Of Demand

The price elasticity of Demand may be


defined as the ratio of the relative change
in demand and price variables.

e = percentage/proportional change in
quantity demanded
percentage/proportional
change in price

Types Of Price Elasticity


Perfec
tly
Elasti
c

Unit
ary
Elast
ic

Price
Elasti
city
Relati
vely
Inelast
ic

Perfec
tly
Inelas
tic
Relati
vely
Elasti
c

Perfectly Elastic

Consumers have
indefinite
demand at a
particular price
and none at all
at an even
slightly higher
than this given
price, demand is
PERFECTLY
ELASTIC

Perfectly Inelastic

When the demand


for a commodity
shows no response
to a change in
price/ whatever
change in price,
the demand
remains same, it is
called PERFECTLY
ELASTIC

Relatively Elastic

When the
proportion of
change in the
quantity
demanded is
greater than that
of price, the
demand is said to
be RELATIVELY
ELASTIC

Relatively Inelastic

When the
proportion of
change in the
quantity demanded
is less than that of
price the demand
is considered to be
RELATIVELY
INELASTIC

Unitary Elastic

When the
proportion of
change in
demand is
exactly the same
as the change in
price, the
demand is said to
be UNITARY
ELASTIC

Measurement Of Price Elasticity


Percentage/
Proportionate
Method

Measurement
Of Price
Elasticity
Arc Method

Geometric/
Point
Method

Point/Geometric Method

This method
attempts to
measure the
price
elasticity of
demand at a
particular
Point Elasticity = Lower segment of demand
point on
curve below the point
Upperdemand
segment of demand
curve below the point

Arc Elasticity Of Demand

Arc Elasticity
of Demand
measures the
elasticity at
the mid point
between two
points on a
curve

Income Elasticity Of Demand

The income elasticity is defined as a ratio


percentage or proportional change in the
quantity demanded to the percentage or
proportional change in income.

Income Elasticity = percentage change


in quantity demanded
percentage
change in income

Cross Elasticity Of Demand

The cross elasticity of demand refers to the


degree of responsiveness of demand for a
commodity to a given change in the price
of some related commodity.
Cross Elasticity Of Demand =
Proportionate/percentage change in
demand for x
Proportionate/percentage change in price
of y

Factors Influencing Elasticity Of Demand


Nature of commodity
Availability of substitutes
Number of uses
Consumers income
Height of price and range of price change
Proportion of expenditure
Durability of the commodity
Habit
Complementary goods
Time
Recurrence of demand
Possibility of postponement

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Application Of Income Elasticity

Long term business planning


Market strategy
Housing development strategies

Practical Applications

To businessmen
To the government and finance minister
To international traders
To policy makers
To trade unionists

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