Postgraduate Diploma in Business Management 201415 Dr M

Postgraduate Diploma in Business Management 2014/15 Dr. M. Ganeshamoorthy, B. A (Hons) PDN, Pg. DED CMB, M. A CMB, Ph. D The Netherlands

MUx = ΔTU/ ΔQx Consumer Equilibrium is achieved when MUx = Px

Consumer Equilibrium is achieved when MUx = Px

Elasticity of Demand • Elasticity of demand is a measure of sensitivity of quantity demand to a change in any one of the determinants of demand. • There are THREE types of elasticity of demand: 1. Price elasticity of demand 2. Income elasticity of demand 3. Cross elasticity of demand

Elasticity of Demand 1. Price elasticity of demand:

Elasticity of Demand 1. Price elasticity of demand: Measuring price elasticity of demand: Point formula: PED: (ΔQD/ΔP)x(P/QD) Arc Elasticity formula: PED: (ΔQD/ΔP)x(P 1+P 2/QD 1+QD 2)

Elasticity of Demand Point Price Quantity demanded A 0 120 B 2 100 C 4 80 D 6 60 E 8 40 F 10 20 G 12 0

Elasticity of Demand

Elasticity of Demand • 1. 2. 3. 4. Determinants of Elasticity of Demand Necessities versus Luxuries Availability of Substitutes Relative Price (Income) Time

Elasticity of Demand

Elasticity of Demand • Income Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand • Cross elasticity measures the responsiveness of quantity demanded of one commodity to a change in price of another commodity YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand

Elasticity of Demand • Cross Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)