ELASTICITY OF DEMAND
IT STATES THAT HOW
CONSUMER ARE REACTING IN TWO DIFFERTENT SITUATION, WHEN THE PRICE OF COMMODITY
INCRESES AND FALL.
EX-SUPPOSE RAM
USED TO BUY 2 KG OF APPLE IN RS 400 PER DAY, WHEN THE PRICE OF APPLE WAS 200
/KG,
SINCE, THE PRICE
OF APPLE GET INCRESES, BY RS 50/KG NOW
RAM IS ABLE TO BUY ONLY 1.5 KG OF APPLE IN RS 350.THIS RESPONSIVNESS TOWARDS
BUYING THE APPLE IS DIRECTED AS ELASTICITY.
ELASTICITY
(E)= % CHANGE IN QUANTITY DEMANDED
OF GOOD A/%CHANGE IN PRICE OF GOOD A
IF E IS GREATER THAN
1, DEMAND IS ELASTIC.
IF E IS LESS THAN
1,DEMAND IS INELASTIC.
IF E IS =1,DEMAND IS
UNITARY.
WE CAN MEASURE
ELASTICITY BY OBSERVING THE THINGS.
IF PRICE GOES DOWN
AND REVENUE GOES UP, THEN DEMAND IS
ELASTIC.
IF PRICE GOES DOWN
AND REVENUE GOES DOWN, THEN DEMAND IS ENELASTIC.
IF PRICE GOES UP AND
REVENUE GOES UP DEMAND IS ENELASTIC.
IF PRICE GOES UP AND
REVENUE GOES DOWN, DEMAND IS ELASTIC.
IF PRICE GOES UP OR
DOWN AND REVENUE STAY THE SAME, THEN ELASTICITY IS UNITARY.
ENELASTIC DEMAND:
A PRODUCT IS SAID TO BE ENELASTIC, WHEN PRICE AND
TOTAL REVENUE FALLS.
WHEN DEMAND IS ENELASTIC, BY RISING PRICE INCRESE THE TOTAL
REVENUE.
FACTOR THAT AFFECTING ELASTICITY.
AVAILABILITY OF
SUBSTITUTES.
PRICR RELATIVE TO
PURCHASING POWER.
PRODUCT DURABILITY
A PRODUCT’S OTHER
USE.
RATE OF INFLATION.
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