Postgraduate Diploma in Business and Finance 2015/16 Dr. M. Ganeshamoorthy, B.A (Hons) PDN, PgDED CMB, M.A CMB, Ph.D The Netherlands.

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Presentation transcript:

Postgraduate Diploma in Business and Finance 2015/16 Dr. M. Ganeshamoorthy, B.A (Hons) PDN, PgDED CMB, M.A CMB, Ph.D The Netherlands

MUx = ΔTU/ ΔQx Consumer Equilibrium is achieved when MUx = Px

Elasticity of Demand Elasticity of demand is a measure of sensitivity of quantity demand to a change in any one of the determinants of demand. There are THREE types of elasticity of demand: 1.Price elasticity of demand 2.Income elasticity of demand 3.Cross elasticity of demand

Elasticity of Demand 1.Price elasticity of demand:

Elasticity of Demand 1.Price elasticity of demand: Measuring price elasticity of demand: Point formula: PED: (ΔQD/ΔP)x(P/QD) Arc Elasticity formula: PED: (ΔQD/ΔP)x(P 1 +P 2 /QD 1 +QD 2 )

Elasticity of Demand PointPriceQuantity demanded A0120 B2100 C480 D660 E840 F1020 G120

Elasticity of Demand

Determinants of Elasticity of Demand 1.Necessities versus Luxuries 2.Availability of Substitutes 3.Relative Price (Income) 4.Time

Elasticity of Demand

Income Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Income Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand Cross elasticity measures the responsiveness of quantity demanded of one commodity to a change in price of another commodity YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand

Elasticity of Demand Cross Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)

Elasticity of Demand Cross Elasticity of Demand YED: (ΔQD/ΔY)x(Y/QD)