MANAGERIAL ECONOMICSMANAGERIAL ECONOMICS

TopicTopic: : Determinants of Elasticity of Determinants of Elasticity of Demand and Supply Demand and Supply

Prof. :- Mrs. Hema Jaganathan.Prof. :- Mrs. Hema Jaganathan.

Group MembersGroup Members

Name Roll No

Shaikh Mohib 46

Aafrin Siddiqui 49

Shah Firoz 36

Hurzuk Talib 14

Kazmi Abu 16

Shahbaz Vasta 52

Afreen Chaudhari 08

Amreen Patel 30

Shaikh Tahir 47

ContentsContents

What is Demand?What is Demand? Determinants of DemandDeterminants of Demand What is Elasticity?What is Elasticity? What is Supply ?What is Supply ? Determinants of SupplyDeterminants of Supply

What is DemandWhat is Demand

“ “Demand shows the relationship between the Demand shows the relationship between the prices of a commodity and the quantity of the prices of a commodity and the quantity of the commodity which the consumer wants to buy at commodity which the consumer wants to buy at those prices”those prices”

Three things are essential for a desire for a Three things are essential for a desire for a commodity to become effective demand.commodity to become effective demand.

1) Desire for a commodity1) Desire for a commodity

2) Willingness to pay2) Willingness to pay

3) Ability to pay for the commodity.3) Ability to pay for the commodity.

Determinants of DemandDeterminants of Demand

Tastes and FashionsTastes and Fashions SubstitutesSubstitutes ComplementsComplements IncomeIncome Expectations of future price changesExpectations of future price changes PopulationPopulation

What is Elasticity of Demand?What is Elasticity of Demand?

Elasticity refers the degree to which individuals Elasticity refers the degree to which individuals (consumers/producers) change their demand/amount (consumers/producers) change their demand/amount supplied in response to price or income changes.supplied in response to price or income changes.

Calculated as: Calculated as: % Change in Price % Change in Price Ped =

% Change in Quantity Demanded _________________________

Types of price Elasticity of DemandTypes of price Elasticity of Demand

Five cases of Elasticity of Demand:Five cases of Elasticity of Demand:

1. Perfectly elastic demand1. Perfectly elastic demand 2. Perfectly inelastic demand2. Perfectly inelastic demand 3. Relatively elastic demand3. Relatively elastic demand 4. Relatively inelastic demand4. Relatively inelastic demand 5. Unitary elastic demand5. Unitary elastic demand

What is SupplyWhat is Supply  ” ”supply is the amount of some product producers supply is the amount of some product producers

are willing and able to sell at a given price all are willing and able to sell at a given price all other factors being held constant.”other factors being held constant.”

Determinants of SupplyDeterminants of Supply

Costs of ProductionCosts of Production Profitability of alternative goods in supplyProfitability of alternative goods in supply Nature, random shocksNature, random shocks Expectations of future pricesExpectations of future prices Profitability of goods in joint-supplyProfitability of goods in joint-supply

Measures the responsiveness of quantity supplied Measures the responsiveness of quantity supplied to a change in the product's price.to a change in the product's price.

How muchHow much does quantity supplied change when does quantity supplied change when the price of the product changes?the price of the product changes?

Price Elasticity of Supply

Types of price Elasticity of SupplyTypes of price Elasticity of Supply

Co-efficient Elasticity

Supply elasticity = α Perfectly elastic

Supply elasticity = 0 Perfectly inelastic

Supply elasticity = 1 Unitary elastic

Supply elasticity > 1 Relatively elastic

Supply elasticity < 1 Relatively inelastic

PES= 0

Types of Supply CurvesTypes of Supply Curves

PES= infinity