A Study on

Types of Elasticity

A Mini Project Report in Managerial Economics Submitted to JNTU,

Kakinada in Partial Fulfilment for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted ByAnusha Gopisetty

(Reg. No. 13491E0007).

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATIONQIS COLLEGE OF ENGINEERING & TECHNOLOGYAn ISO 9001: 2008 Certified Institution and Accredited by NBA

(Affiliated to JNTU, Kakinada and Approved by AICTE)Vengamukkapalem, Pondur Road

ONGOLE –523 272.

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INDEX:

S.NO PARTICULARS PAGE NO

1 Abstract 2 Introduction

Definition Need to study Scope of study

3 Objectives

4 Methodology

5 Review of literature

6 Types of Elasticity

7 Conclusion

8 Reference

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Types of Elasticity

Abstract:

Prof. Baber has mentioned the following three types of demand based on three important factors

[Price of commodity, income of the consumer and prices of related goods] influencing the demand: The elasticity of demand is price, income, cross, adverting demands.

Keywords: elasticity of demand; elasticity; demand;

Introduction: The changes occurs in quantity demanded of a product because of price, income of the

consumer, prices of related goods, taste and preferences of consumers, and advertising effects. These changes are not so far quantified.

Measuring these changes is necessary to study the changes in quantity demanded in relation to changes in demand determinants. For measuring these changes we had tool that is elasticity of demand. By using this tool we can measure the effect of changes in any one of the demand determinants.

Definition:

The terms ‘elasticity’ is defined as the rate of responsiveness in the demand of a commodity for a given change in price or any other determinants of demand.

Elasticity of demand is defined as the percentage changes in quantity demanded by one percentage change in demand determinants of consideration, by other determinants held constraint.

Need to study:

The elasticity of demand is very use full to the organization. The types are using and produce the product in market. This elasticity of demand is important to management. It is necessary that the trader should be aware of the impact of changes in the quantity demanded for a given change in price.

Scope of study:

Demand is one of the most important economic decision variables. Demand analysis is very crucial

For managerial decisions related to market strategy, pricing, advertising, production planning, inventory

Management, financial evaluation and investment decisions. Demand is effective want related to given

Price and given time period.

Objectives:

To know about types of elasticity

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To know significance of elasticity

Methodology:

The project is descriptive & exploratory but constructive in nature.

The secondary data is collected through books, journals, magazines

The primary data is collected through descriptive with acumination expects etc.

Review of literature:

The presentation of types of elasticity of demand is telling the different types are havening. These are using to the every organization and produce the product. The different type are use full to the company and these elasticity of demand is change to different level of market, so you can utilise the elasticity of demand to produce the product in market.

Types of Elasticity:

There are 4 types of elasticity of demand

Price elasticity of demand Income elasticity of demand Cross elasticity of demand Advertising elasticity of demand

1. Price elasticity of demand:

Elasticity of demand in general refers to the price elasticity of demand. In other words, it refers to the quantity demanded of a commodity in response to a given change in price. Price elasticity is always negative which indicates that the customer tends to buy more with every fall in the price. The relationship between the price & the demand in inverse.

In the measured as follows....

Price elasticity of demand= proportional change in the quantity demand for product X

Proportional change in the price of X

Edp = (Q2-Q1)/Q1/ (P2-P1)/P1

Q1=quantity of demand before price change.

Q2=quantity of demand after price change.

P1=price before elasticity

P2=price after change.

Significance of price elasticity of demand: It is necessary that the trader should be aware of

the impact of changes in the quantity demanded for a given change in price. He can take a decision as to

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how much he can supply if he is aware of the likely change in quantity demanded as a result of change in price.

2. Income elasticity of demand:

Income elasticity of demand of demand refers to the quantity demanded of a commodity in response to a given change in income of the consumer.

Income elasticity is normally positive, which indicates that the consumer tends to buy more and more with every increase in income.

Income elasticity of demand= proportional change in the quantity demand for product X

Proportional change in the price of X

Edi = (Q2-Q1)/Q1/(I2-I1)/I1

Q1=quantity of demand before change.

Q2=quantity of demand after change.

I1= Income before elasticity

I2= Income after change.

Positive income elasticity indicates that the demand for the product rises more quickly them the rise in disposable income.In other words, is more responsive to a change in income.

Significance of income elasticity of demand:

In determining the effects of changes in business activity it is necessary for the trader to be aware of income elasticity of demand for given commodities.With the help of income elasticity of demand , he can estimate the likely changes in the demand for this product as a result of changes in the national income.

3.Cross elasticity of demand:

Cross elasticity of demand refers to the quantity demanded of a commodity in response to a change in the price of a related good, which may be substitude or compliment.

Income elasticity of demand= proportional change in the quantity demand for product X

Proportional change in the price of product X

Edc = (Q2-Q1)/Q1/(P2y-P1y)/P1y.

Q1=quantity of demanded before change.

Q2=quantity of demanded after change.

P1y= Price before elasticity

P2y= Price after change.

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Significance of cross elasticity of demand:

Knowledge of cross elasticity of demand helps a firm to estimate the likely effect of pricing decision of its traders dealing in related products on sales. It also helps in defining industry.

4. Advertising elasticity:

It refers to increase in the sales in the sales revenue because of change in the advertising expenditures. In other words, there is a direct relationship between the amount of money spent on adverting and its impact on sales.Adverstisity elasticity is always positive.

Advertising elasticity of demand= proportionate change in the quantity demand for product X

Proportionate change in the advertisement of product X

Edc = (Q2-Q1)/Q1/ (A2-A1)/A1.

Q1=quantity of demanded before change.

Q2=quantity of demanded after change.

A1=amount spent on advertisement before change

A2= amount spent on advertisement after change

Significance of Advertising elasticity of demand:

The advertising agencies richly depend on this concept to provide consultancy for their clients about the advertisement budgets for a given level of sales activity.

Significance of elasticity of demand:

The concept of elasticity is very useful to the producer and policy makers alike. It is very valuable tool to decide the extent of increase or decrease in price for a desired change in the quantity for the products and services in the firm or the economy

1. Price of factors of production:

The factors of production are land labour capital organization and technology. These have a cost. We have to pay rent, wages, interests, profits, and price for these factors of production.

2. Price fixation:

The manufacture can decide the amount of price that can be fixed for his product based on the concept of elasticity. If there is no competition, in other words, in case of monopoly, the manufacture is free to his price as long as it does not attract the attention of the government.

3. Government policies:

1. Tax policies

2. Raising bank deposits

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3. Public utilities

4. Revolution or devaluation of currencies

4. Forecasting demand:

Income elasticity used to forecast demand for particular product or service. The demand for the product can be forested at a given income level.

5. Planning the levels of output and price:

The knowledge of price elasticity of price elasticity is very useful to producers. The producer can produce whether a change in price will bring in adequate revenue or not.

Conclusion:

The elasticity of demand havening the different types these types are using in the market the different type of products is producing. Every organization havening the some principals these principals are using and produce the product. The elasticity of demand is types are price elasticity, income elasticity, cross elasticity, advertising elasticity these are used and produce the product

Reference:

1. Mitanni D.M.: Managerial Economics, Himalaya Publishing House, Mumbai

2. Dwivedi, D.N.: Managerial Economics, Vikas Publishing House Pvt. Ltd, New Delhi

3. Misra & Puri: Economics for Managers, Himalaya Publishing House, Mumbai

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