Our Recommendations :-
Follow FB Page Facebook

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University Notes

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University : Similar in meaning to the expansion of a rubber band, elasticity of demand/supply refers to how changes in X (which can be anything such as price, income, raw material prices, etc.) can affect the quantity demanded or quantity supplied. In price elasticity of demand (PED) and price elasticity of supply (PES), we look at how changes in price can affect the quantity demanded or the quantity supplied. The article offers a clear overview of PED and PES and highlights their similarities and differences.

Download here Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Semester 1 Delhi University Notes in pdf forma

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University Notes

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University :  The elasticity between two variables is a measure of how one reacts to a change of the other. Whereas the elasticity of supply measures the responsiveness of suppliers to price increases, the elasticity of demand measures the responsiveness of buyers to price changes.

What is Elasticity of Demand?

Price elasticity of demand shows how changes in demand can occur with the slightest change in price. Price elasticity of demand is calculated by the following formula.

Important Note – Preparing for BCom?
CAKART provides Indias top faculty each subject video classes and lectures – online & in Pen Drive/ DVD – at very cost effective rates. Get video classes from CAKART.in. Quality is much better than local tuition, so results are much better.
Watch Sample Video Now by clicking on the link(s) below – 
For any questions Request A Call Back  

PED = % change in the quantity demanded / % change in the price

There are different levels of elasticity depending on how responsive quantity demanded is to change in price. If PED = 0, this shows perfectly inelastic situation where demand will not change at all with any changes in price; examples are necessities, addictive goods. If PED < 1, this is still inelastic because change in quantity demanded is lower than the respective change in price (large change in price will result in a small change in quantity demanded). If PED > 1, this shows price elastic demand where a small change in price will result in a large change in quantity demanded; examples are luxury goods, substitute goods. When PED = 1, the change in price will have an equal change in quantity demanded; this is called unitary elastic.

A number of factors can affect PED such as the availability of substitutes (demand is more elastic with more substitutes as now consumers can switch to butter if the price of margarine increases), whether the product is a necessity (demand inelastic) or luxury (demand elastic), whether the good is habit forming (such as cigarettes – demand is inelastic), etc.

What is Elasticity of Supply?

Price elasticity of supply shows how changes in price can affect quantity supplied. Price elasticity of supply is calculated by the following formula.

PES = % change in the quantity supplied / % change in the price

When PES > 1, supply is price elastic (small change in price will affect quantity supplied). When PES < 1, supply is price inelastic (large change in price will have a small effect on quantity supplied). When PES = 0, supply is perfectly inelastic (a change in price will not affect quantity supplied), and PES = infinity is when quantity supplied will not change, regardless of the price.

Important Note – Preparing for BCom?
CAKART provides Indias top faculty each subject video classes and lectures – online & in Pen Drive/ DVD – at very cost effective rates. Get video classes from CAKART.in. Quality is much better than local tuition, so results are much better.
Watch Sample Video Now by clicking on the link(s) below – 
For any questions Request A Call Back  

There are a number of factors that can affect PES such as spare production capacity (supply elastic), availability of raw materials (raw materials scarce, supply inelastic), time period (longer time period – supply is elastic as the firm has enough time to adjust factor of production and increase production), etc.

Elasticity of Supply vs Elasticity of Demand

Price elasticity of demand and price elasticity of supply are concepts closely related to one another as they consider how demand or supply will be affected by changes in price. The two are, however, different as PED looks at how demand will change and PES considers how supply will change. The other major difference between elasticity of demand and elasticity of supply is that demand and supply respond differently to an increase/decrease in price; demand tends to increase when price falls, and supply tends to fall when price falls. This means that if PED is elastic, a small increase in price will cause a large decrease in quantity and if PES is elastic a small increase in price will cause a large increase in quantity supplied.

Summary:

• Price elasticity of demand and price elasticity of supply are concepts closely related to one another as they consider how demand or supply will be affected by changes in price.

• Price elasticity of demand shows how changes in demand can occur with the slightest change in price. Price elasticity of demand is calculated by, PED = % change in the quantity demanded / % change in the price.

• Price elasticity of supply shows how changes in price can affect quantity supplied. Price elasticity of supply is calculated as, PES = % change in the quantity supplied / % change in the price.

• One major difference between elasticity of demand and elasticity of supply is that demand and supply respond differently to an increase/decrease in price; demand tends to increase when price falls, and supply tends to fall when price falls.

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University Notes

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University :  These two measurements are interrelated, and are used in conjunction to understand market production and purchasing. Price elasticity of supply and elasticity of demand are both economic means of understanding price and demand sensitivity. Price elasticity expresses how much the price of a good or service is sensitive to supply. Inelastic pricing does not change significantly whenever supply changes. That is, if supply increases or decreases, the price remains about the same. Elasticity of demand expresses a similar concept; that is, inelasticity of demand describes a product or service that does not respond much in demand to a change in price. The two concepts differ in whether supply or demand is being considered. A change in price that does not cause a significant change in demand is an example of inelasticity of demand. Price inelasticity occurs when a change in supply does not significantly change prices.

Economists measure elasticity of demand and price elasticity of supply using ratios that illustrate the intimate connection between price, demand and supply. When the elasticity of demand ratio is valued near or at zero, the product is said to be inelastic, while values closer to one are elastic. The price elasticity of supply ratio has a coefficient that expresses elasticity. When values exceed one, the product supply is elastic; conversely, inelastic values fall below one. Demand elasticity is influenced by brand loyalty, necessity, and the use of substitute items and services, among other factors. Supply elasticity is impacted by availability to manufacturers of raw materials, adequate product transportation, inventories and production complexity, for example.

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University Notes

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University : Price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price elasticity of demand is a term in economics often used when discussing price sensitivity. The formula for calculating price elasticity of demand is:

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.

BREAKING DOWN ‘Price Elasticity Of Demand’

Price elasticity of demand measures the responsiveness of demand to changes in price for a particular good. If the price elasticity of demand is equal to 0, demand is perfectly inelastic (i.e., demand does not change when price changes). Values between zero and one indicate that demand is inelastic (this occurs when the percent change in demand is less than the percent change in price). When price elasticity of demand equals one, demand is unit elastic (the percent change in demand is equal to the percent change in price). Finally, if the value is greater than one, demand is perfectly elastic (demand is affected to a greater degree by changes in price).

For example, if the quantity demanded for a good increases 15% in response to a 10% decrease in price, the price elasticity of demand would be 15% / 10% = 1.5. The degree to which the quantity demanded for a good changes in response to a change in price can be influenced by a number of factors. Factors include the number of close substitutes (demand is more elastic if there are close substitutes) and whether the good is a necessity or luxury (necessities tend to have inelastic demand while luxuries are more elastic).

Businesses evaluate price elasticity of demand for various products to help predict the impact of a pricing on product sales. Typically, businesses charge higher prices if demand for the product is price inelastic.

Unit 1 Part B Elasticity Of Demand And Supply For Principles Of Micro Economics Bcom Sem 1 Delhi University Notes

CAKART provides India’s top BCOM faculty video classes – online & in Pen Drive/ DVD – at very cost effective rates. Get BCOM Video classes from CAKART.in to do a great preparation for your exam.
Watch BCOM first year sample video lectures Here
Watch BCOM Second year sample video lecture Here
Watch BCOM Third year Sample video lecture Here
For any questions chat with us by clicking on the chat button below or give a missed call at 9980100288

About Author: yuvaraja reddy

Leave a Reply

Your email address will not be published. Required fields are marked *

Chat with a counsellor
SIGN UP