Unit I-Economics-08-Demand Analysis- Elasticity
Give an example of relatively inelastic demand.
For example, if the price of a good goes down by 10%, the proportionate change in its demand will not go beyond 9.9%, if it reaches 10% then it would be called unitary elastic demand.
How does income level influence the elasticity of demand?
People with high income are less influenced by price changes, while lower income groups are influenced more.
Describe perfectly elastic demand.
Perfectly elastic demand occurs when there is a sharp rise or fall in demand due to a change in the price of the commodity.
What is perfectly inelastic demand?
Perfectly inelastic demand is a situation where there is no change in quantity demanded measured against a price change.
What is the mathematical formula to calculate the Price Elasticity of Demand?
Price Elasticity of demand = % Change in Quantity Demanded /% Change in Price
Describe price elasticity of demand.
Price elasticity of demand measures the responsiveness of quantity demanded when there is a change in price. It determines how much the quantity demanded changes in response to a change in price.
Define relatively elastic demand.
Relatively elastic demand refers to the demand when the proportionate change in the demand is greater than the proportionate change in the price of the good. The numerical value of relatively elastic demand ranges between one to infinity.
What is relatively inelastic demand?
Relatively inelastic demand refers to a demand where the proportionate change in the quantity demanded for a product is always less than the proportionate change in the price. The numerical value of relatively inelastic demand is always less than 1.
What is unitary elastic demand?
Unitary elastic demand occurs when the proportionate change in the quantity demanded for a product is equal to the proportionate change in the price of the commodity.
Define unitary elasticity.
Unitary elasticity is a situation where the fluctuation in one variable and the quantity demanded are equal.
Describe a perfectly inelastic demand.
A perfectly inelastic demand refers to a demand where the quantity demanded remains constant regardless of changes in price. The demand curve for a perfectly inelastic demand is a vertical line with a slope of zero.
Explain the concept of elastic demand.
An elastic demand is one that shows a larger fluctuation in the quantity demanded of a product, in response to even a little change in another economic variable.
What is an example of inelastic demand?
An example of inelastic demand is petrol or diesel.
Give an example of perfectly inelastic demand.
An example of perfectly inelastic demand is the demand for necessary goods.
What is an oligopoly?
An oligopoly is a market structure where multiple players compete.
Define Cross Elasticity of Demand.
Cross Elasticity of Demand measures the sensitivity of quantity demanded of one good (X) when there is a change in the price of another good (Y).
What is the formula to calculate Cross Elasticity of Demand?
Cross Elasticity of demand = (% Change in Quantity Demanded for one good (X)) / (%Change in Price of another Good (Y))
Describe demand analysis.
Demand analysis is the process of studying and evaluating the factors that influence the demand for a product or service. It involves analyzing consumer behavior, market trends, and economic indicators to understand the quantity of a product or service that consumers are willing and able to purchase at different price levels.
Define demand elasticity.
Demand elasticity is a measure of how sensitive the quantity demanded of a product or service is to changes in its price. It indicates the responsiveness of demand to price changes. If demand is elastic, a small change in price will result in a proportionately larger change in quantity demanded. If demand is inelastic, a change in price will have a relatively smaller impact on quantity demanded.
How does demand elasticity affect pricing decisions?
Demand elasticity plays a crucial role in pricing decisions. If demand for a product is elastic, a decrease in price will lead to a significant increase in quantity demanded, which can help increase revenue. On the other hand, if demand is inelastic, a price increase may not significantly impact quantity demanded, allowing the seller to increase revenue without losing many customers.
Describe the relationship between time and the elasticity of demand.
Demand is generally inelastic in the short run, while it is elastic in the long run, as there would be more substitutes available.
What is elasticity in economics?
Elasticity is a concept in economics that talks about the effect of change in one economic variable on the other.
What factors affect the elasticity of demand?
Factors affecting the elasticity of demand include the nature of the commodity, availability of substitutes, income level, postponement of consumption, number of uses, share in total expenditure, time, and habits.
Explain how the availability of substitutes affects the elasticity of demand.
If more close substitutes are available, then the demand is highly elastic. But if lesser or no substitutes are available, then it is inelastic.
What is the impact of habits on the elasticity of demand?
If the consumer has become habitual for a certain commodity, that commodity would face inelastic demand.
Give an example of an elastic demand.
If there is a hike of $0.5 in the price of a cup of coffee, there are very high chances of a steep decline in the quantity demanded.
How does relatively elastic demand respond to price changes?
In relatively elastic demand, if the price of a good increases by 25%, the demand for the product will necessarily fall by more than 25%. Relatively elastic demand has a practical application as many goods respond in the same manner when there is a price change.
What is the formula to calculate the Income Elasticity of Demand?
Income elasticity of demand = % Change in Quantity Demanded/% Change in Income
Describe inelastic demand.
Inelastic demand refers to a situation where there is very little fluctuation in the quantity demanded in response to changes in another economic variable.
How does the demand curve of relatively inelastic demand look like?
The demand curve for relatively inelastic demand is rapidly sloping.
Describe the demand curve for unitary elastic demand.
The demand curve for unitary elastic demand is represented as a rectangular hyperbola.
Describe the demand curve of relatively elastic demand.
The demand curve of relatively elastic demand is gradually sloping.
According to Alfred Marshall, how does the elasticity of demand relate to the amount demanded and price?
The elasticity (or responsiveness) of demand in a market is great or small as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price.
What does the Price Elasticity of Demand determine?
The intensity of the effect of price change on the quantity demanded of a commodity
What is the numerical value obtained from the PED formula for a perfectly inelastic demand?
The numerical value obtained from the PED formula for a perfectly inelastic demand is zero.
Describe the result obtained for a substitute good in terms of Cross Elasticity of Demand.
The result obtained for a substitute good would always come out to be positive as whenever there is a rise in the price of a good, the demand for its substitute rises.
What is the slope of the demand curve for a perfectly elastic demand?
The slope of the demand curve for a perfectly elastic demand is horizontal.
What are the three types of Elasticity of Demand?
The three types of Elasticity of Demand measure the sensitivity of quantity demanded to a change in the price of the good, the income of consumers buying the good, and the price of another good.
What are the three types of elasticity of demand?
The three types of elasticity of demand are price elasticity of demand, income elasticity of demand, and cross elasticity of demand.
What does the Income Elasticity of Demand help determine?
Whether a good is a necessary good or a luxury good