Price, Income, and Cross Elasticity of Demand PDF

Price, Income, Cross Elasticity of Demand MADE BY- ARPIT MISHRA, DAKSH AGGARWAL, DIKSHA, BHAVIKA, AVANTIKA  What is Elasticity? Elasticity is a concept in economics that measures how much one variable responds to changes in another variable. In simple terms, it helps us unders...

Price, Income, Cross Elasticity of Demand MADE BY- ARPIT MISHRA, DAKSH AGGARWAL, DIKSHA, BHAVIKA, AVANTIKA  What is Elasticity? Elasticity is a concept in economics that measures how much one variable responds to changes in another variable. In simple terms, it helps us understand how sensitive the demand for a product or service is to changes in factors like price or income.  Types of Elasticity Price Elasticity of Demand (PED) Income Elasticity of Demand (YED) Cross Elasticity of Demand (XED)  Price Elasticity of Demand (PED) Price elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in its price. Income Elasticity of Demand (YED)  Price Elasticity of Demand (PED) Perfectly Elastic Demand Perfectly elastic demand occurs when any change in price leads to an infinite change in quantity demanded. This means that consumers will only buy at one specific price and none at any other price. The demand curve for perfectly elastic demand is a horizontal line. Income Elasticity of Demand (YED)  Price Elasticity of Demand (PED) Perfectly Inelastic Demand Perfectly inelastic demand means that the quantity demanded does not change regardless of changes in price. Consumers will buy the same amount no matter how much the price increases or decreases. The demand curve for perfectly inelastic demand is a vertical line. Income Elasticity of Demand (YED)  Price Elasticity of Demand (PED) Inelastic Demand Inelastic demand indicates that the percentage change in quantity demanded is less than the percentage change in price (Ed < 1). This implies that consumers are relatively unresponsive to price changes. Income Elasticity of Demand (YED)  Price Elasticity of Demand (PED) Unit Elastic Demand Unit elastic demand signifies that the percentage change in quantity demanded equals the percentage change in price (Ep=1). In this case, total revenue remains constant when prices change because the loss from lower sales offsets gains from higher prices. Income Elasticity of Demand (YED)  Price Elasticity of Demand (PED) Elastic Demand Elastic demand occurs when the percentage change in quantity demanded is greater than the percentage change in price (Ed > 1). This means consumers are sensitive to price changes and will significantly alter their purchasing behavior based on those changes. Income Elasticity of Demand (YED)  Income Elasticity of Demand (YED) Income Elasticity of Demand (YED) measures how the quantity demanded of a Y good responds to changes in consumer income. Cross Elasticity of Demand (XED)  Income Elasticity of Demand (YED) Types of Income Elasticity of Demand Normal Goods As income increases, the demand for these goods also increases. Inferior Goods As income increases, the demand for these goods decreases Cross Elasticity of Demand (XED)  Cross Elasticity of Demand (XED) Cross Elasticity of Demand (XED) measures the responsiveness of the X quantity demanded for one good when there is a change in the price of another good.  Types of Cross Elasticity of Demand Positive XED (Substitutes): When two goods are substitutes, an increase in the price of Good B leads to an increase in the quantity demanded for Good A. For example, if the price of coffee rises, consumers may buy more tea instead. Negative XED (Complements): When two goods are complements, an increase in the price of Good B leads to a decrease in the quantity demanded for Good A. For instance, if the price of printers increases, the demand for ink cartridges may fall. Zero XED (Unrelated Goods): If two goods are unrelated, changes in the price of one will not affect the quantity demanded for the other. For example, an increase in the price of bread does not impact the demand for bicycles.  THANK YOU Any Question?