Business Economics 05 Elasticity

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Q 1 = Qd before  P Q 2 = Qd after  P P 1 = P before  P P 2 = P after  P

The use of proportionate or % measures ,[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object]

Types/degrees of price elasticity ,[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],Q A E = -  P O -  > E > -1 E = -1 -1 > E > 0 E = 0 -A / B A / 2

Total revenue and elasticity (Qd X = 80 – 2Px) Price of Software (P x ) Quantity of Software Sold (Q x ) Own Price Elasticity (E QxPx ) Total Revenue (P X Q X ) A 0 80 0.00 0 B 5 70 -0.14 350 C 10 60 -0.33 600 D 15 50 -0.60 750 E 20 40 -1.00 800 F 25 30 -1.66 750 G 30 20 -3.00 600 H 35 10 -7.00 350 I 40 0 -  0

[object Object],[object Object],[object Object],[object Object]

Demand, elasticity and total revenue

Q TR 0 TR Q A E = -  P O -  > E > -1 E = -1 -1 > E > 0 E = 0 -A / B A / 2

[object Object],[object Object],[object Object],[object Object],[object Object],elasticity price increases price decreases e > 1 TR falls TR rises e = 1 TR constant TR constant e < 1 TR rises TR falls

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Using price elasticity of demand: Application to Phillip Morris ,[object Object],[object Object],[object Object]

Exercise ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],555 8,700 15.7 1.31 1981 638 9,300 14.5 0.86 1979 25% 680 9,600 14.1 0.62 1977 685 9,400 13.7 0.57 1975 736 7% 9,800 13.3 $ 0.40 1973 Avg. Fuel consumption (gallons) Avg. Miles driven per vehicle per Year Avg. Miles per gallon Avg. Price of gasoline Year

[object Object],Good or service Estimated price elasticity Electricity -0.13 SR Electricity -1.89 LR Water -0.14 LR Motion pictures -3.69 LR Gasoline -0.15 SR Gasoline -0.78 LR Foreign travel -4.10 LR

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Income elasticity of demand, selected commodities, global Good Elasticity Good Elasticity Grain(China) -0.12 to 0.15 Cream (US) 1.72 Potatoes(UK) -0.32 Eggs (UK) -0.21 Potatoes(US) 0.15 Eggs (US) 0.57 Oranges (US) 0.83 Break (UK) -0.17 Apples (US) 1.32 Other cereal products (UK) 0.18 Lettuce (US) 0.88 Domestic cars (US) 1.62 Meat (China) 0.1 to1.2 European cars (US) 1.93 Milk (UK) 0.05 Asian cars (US) 1.65 Milk (US) 0.50

[object Object],Commodity Rural Urban Minor cereals -0.83 -1.32 Major cereals 0.55 0.12 Handloom cloth -0.12 0.21 Mill made cloth 0.66 0.70 Bidi tobacco 0.64 -0.19 Cigarette tobacco 1.51 1.17 NCAER, 1964

NSSO Survey 2011 ToI 25 July 2011 1999-2009 Rural Urban Food 70% 78% Education 378% 345% Overall expenditure 8% 20% Medical care 152% 136%

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Trade elasticities in India 1960-91 Country Foreign Ey for India’s Exports India’s Ey for imports Exy for India’s exports Exy for India’s imports ROW 0.49 1.02 -0.94 -0.26 Australia 0.53 1.21 - -0.11 Belgium 1.53 3.91 - -0.83 Canada 0.18 0.43 -0.34 -0.37 France 1.76 2.08 - - Germany 1.42 1.08 -0.18 -1.01

Trade elasticities in India 1960-91 cont. Country Foreign Ey for India’s Exports India’s Ey for imports Exy for India’s exports Exy for India’s imports Italy 0.76 1.70 -1.78 -0.53 Japan 0.49 2.00 -0.05 -1.88 Netherlands 1.24 1.35 -0.28 -0.64 Switzerland 1.52 2.32 - -0.01 UK 0.55 1.68 -0.09 -1.79 USA 1.13 0.39 - -0.46

Reference - Gupta G S and Keshava H, 1994, Income and Price Elasticities in India’s Trade, Vikalpa , Vol. 19, No. 2, pp 13-19.

Determinants of E S ,[object Object],[object Object],[object Object],[object Object],[object Object]

Degrees of elasticity of supply ,[object Object],[object Object],[object Object],[object Object],[object Object]

Unit elastic supply curve 6 5 4 3 1 2 0 1 2 3 4 5 6 b c S 1 a f S 2 S 3 e d g P Q

Elasticity of supply for self-consumption of own product ,[object Object],[object Object]

Exercise ,[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Business Economics 05 Elasticity

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