Mba Sem 3rd
Jan 2011
Master of Business Administration-MBA Semester I
Subject Code – MB0042
Subject Name – Managerial Economics
Assignment Set- 1
Q1. Price elasticity of demand depends on various factors. Explain each factor with the help of an example.
Answer.
Elasticity of Demand:
Earlier we have discussed the law of demand and its determinants. It tells us only the direction of change in price and quantity demanded. But it does not specify how much more is purchased when price falls or how much less is bought when price rises. In order to understand the quantitative changes or rate of changes in price and demand, we have to study the concept of elasticity of demand.
Meaning and Definition
The term elasticity is borrowed from physics. It shows the reaction of one variable with respect to a change in other variables on which it is dependent. Elasticity is an index of reaction. In economics the term elasticity refers to a ratio of the relative changes in two quantities. It measures the responsiveness of one variable to the changes in another variable.
Elasticity of demand is generally defined as the responsiveness or sensitiveness of demand to a given change in the price of a commodity. It refers to the capacity of demand either to stretch or shrink to a given change in price. Elasticity of demand indicates a ratio of relative changes in two quantities.ie, price and demand. According to Prof. Boulding. “Elasticity of demand measures the responsiveness of demand to changes in price” 1 In the words of Marshall,” The elasticity (or responsiveness) of demand in a market is great or small according to the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price” 2.
Kinds of elasticity of demand
Broadly speaking there are five kinds of elasticity of demand.
They are Price Elasticity, Income Elasticity, Cross Elasticity, Promotional Elasticity and Substitution Elasticity. We shall discuss each one of them in
Master of Business Administration-MBA Semester I
Subject Code – MB0042
Subject Name – Managerial Economics
Assignment Set- 1
Q1. Price elasticity of demand depends on various factors. Explain each factor with the help of an example.
Answer.
Elasticity of Demand:
Earlier we have discussed the law of demand and its determinants. It tells us only the direction of change in price and quantity demanded. But it does not specify how much more is purchased when price falls or how much less is bought when price rises. In order to understand the quantitative changes or rate of changes in price and demand, we have to study the concept of elasticity of demand.
Meaning and Definition
The term elasticity is borrowed from physics. It shows the reaction of one variable with respect to a change in other variables on which it is dependent. Elasticity is an index of reaction. In economics the term elasticity refers to a ratio of the relative changes in two quantities. It measures the responsiveness of one variable to the changes in another variable.
Elasticity of demand is generally defined as the responsiveness or sensitiveness of demand to a given change in the price of a commodity. It refers to the capacity of demand either to stretch or shrink to a given change in price. Elasticity of demand indicates a ratio of relative changes in two quantities.ie, price and demand. According to Prof. Boulding. “Elasticity of demand measures the responsiveness of demand to changes in price” 1 In the words of Marshall,” The elasticity (or responsiveness) of demand in a market is great or small according to the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price” 2.
Kinds of elasticity of demand
Broadly speaking there are five kinds of elasticity of demand.
They are Price Elasticity, Income Elasticity, Cross Elasticity, Promotional Elasticity and Substitution Elasticity. We shall discuss each one of them in