Industrial Engineering and Management

Dr JAYAKRISHNA K
Associate Professor
School of Mechanical Engineering, VIT University
Vellore, India
Module I
Introduction to macro and micro economics:
Macro economic measures – micro economics – Demand and supply – Determinants of demand
and supply – Elasticity of demand – Demand forecasting techniques (short term & long term) –
Problems.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Economics
A social science concerned chiefly with the way society chooses to employ its limited resources,
which have alternative uses, to produce and services for present and future consumption.
The study of how individuals and societies make decisions about ways to use scarce resources to fulfill
wants and needs.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Classification of Economics
1930 - Ragnar Frisch – Classified Economics

Derived from Greek words:

▪ Micros - Small
▪ Macros - Large

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Economics
Macroeconomics
Macroeconomics is the study of the entire economy in terms of the total amount of goods and
services produced, total income earned, level of employment of productive resources and
general behaviour of prices.
Ex. GDP, NI, PCI, investment, employment, money supply

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Economics
Microeconomics
Microeconomics is the study of the economic behaviour of individual sector, firm, industry and
the distribution of production and income among them and the influences on it in great detail.
Ex. A particular firm, industry, commodity.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Dr K Jayakrishna, Associate Professor, SMEC-VIT
Economics tells us….
By economics a Industrial engineer can……..
• WHAT to produce (Make)
• HOW MUCH to produce (Quantity)
• HOW to Produce it (Manufacture)
• FOR WHOM to Produce (Who gets What)
• WHO gets to make these decisions?

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Market is defined

Buyer and Seller

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Demand
Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a
specific good or service.
Holding all other factors constant, an increase in the price of a good or service will decrease demand, and
vice versa.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Demand
In economics, only the effective desires are called demand.
Effective desires refer three things –
(a) the desire for the commodity.
(b) willingness to buy
(c) the purchase power to buy.
Demand
– The amount consumers desire to purchase at various prices
– Not what they will buy, but what they would like to buy!

Demand = Desire to acquire + Willingness to pay + Ability to pay

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Demand
Demand is closely related to supply.

• While consumers try to pay the lowest prices they can - for goods and services, suppliers try to
maximize profits.

• If suppliers charge too much, demand drops and suppliers do not sell enough product to earn
sufficient profits.

• If suppliers charge too little, demand increases but lower prices may not cover suppliers costs
or allow for profits.

• Some factors affecting demand include the appeal of a good or service, the availability of
competing goods, the availability of financing and the perceived availability of a good or service.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Demand
Supply and demand factors are unique for a given product or service.

These factors are often summed up in demand and supply profiles plotted as slopes on a graph.

On such a graph, the vertical axis denotes the price, while the horizontal axis denotes the quantity
demanded or supplied.

• A demand profile slopes downward, from left to right. As prices increase, consumers demand
decreases for any good or service.

• A supply curve slopes upward. As prices increase, suppliers supply less of goods or offer low
service.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Demand
As the price of a good increases the demand for the product will (except for a few obscure
situations) tend to decrease.
A pure example of a demand model assumes several conditions:
• Firstly, product differentiation does not exist - there is only one type of product sold at a single
price to every consumer.
• Secondly, in this closed scenario, the item is a basic want and not an essential human necessity.
• Thirdly, the good does not have a substitute and consumers expect prices to remain stable
into the future.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
Demand is generally classified on the basis of various factors, such as
o nature of a product
o usage of a product
o number of consumers of a product, and
o suppliers of a product.

The demand for a particular product would be different in different situations.

Therefore, organizations should be clear about the type of demand for their products.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
(I) Individual and Market Demand:
Refers to the classification of demand of a product based on the number of consumers in the
market.
Individual demand
Individual demand can be defined as a “quantity demanded by an individual for a product at a
particular price and within the specific period of time”.
The individual demand of a product is influenced by the price of a product, income of customers,
and their tastes and preferences.
Market demand
Market demand can be defined as a “the total quantity demanded for a product by all individuals at
a given price and time is regarded as market demand”.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
Individual Vs Market Demand
In simple terms, market demand is the “aggregate of individual demands of all the consumers” of
a product over a period of time at a specific price, while other factors are constant.

For example:-
There are four consumers of oil (having a certain price).
These four consumers consume 30 liters, 40 liters, 50 liters, and 60 liters of oil respectively in a
month.
Thus, the market demand for oil is 180 liters in a month. (∑30+40+50+60 = 180)

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
(II) Organization and Industry Demand:
Refers to the classification of demand on the basis of market.
Organization Demand
The demand for the products of an organization at a given price over a point of time is known as
organization demand.
For example:- the demand for Toyota cars is organization demand.
Industry Demand
The sum total of demand for products of all organizations in a particular industry is known as
industry demand.
For example:- the demand for cars of various brands, such as Toyota, Maruti Suzuki, Tata, and
Hyundai, in India constitutes the industry’ demand.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
Organization Vs Industry Demand
The distinction between organization demand and industry demand is not so useful in a highly
competitive market.
This is due to the fact that in a highly competitive market, organizations have insignificant market
share.
Therefore, the demand for an organization’s product is of no importance.
However, “an organization can forecast the demand for its products only by analysing the industry
demand”.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
(III) Autonomous and Derived Demand:
Refers to the classification of demand on the basis of dependency on other products.
Autonomous Demand
The demand for a product that is not associated with the demand of other products is known as
autonomous or direct demand.
The autonomous demand arises due to the natural desire of an individual to consume the product.
For example:- the demand for food, shelter, clothes, and vehicles is autonomous as it arises due to
biological, physical, and other personal needs of consumers.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
Derived Demand
On the other hand, derived demand refers to the demand for a product that arises due to the demand for
other products.
For example:- the demand for petrol, diesel, and other lubricants depends on the demand of vehicles.
Apart from this, the demand for raw materials is also derived demand as it is dependent on the
production of other products.
Moreover, the demand for substitutes and complementary goods is also derived demand.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
(IV) Demand for Perishable and Durable Goods:
Refers to the classification of demand on the basis of usage of goods.
The goods are divided into two categories, perishable goods and durable goods.
Perishable Goods
Perishable or non-durable goods refer to the goods that have a single use.
For example:- cement, coal, fuel, and eatables.
Perishable goods satisfy the present demand of individuals.
Durable Goods
On the other hand, durable goods refer to goods that can be used repeatedly.
For example:- clothes, shoes, machines, and buildings.
However, durable goods satisfy both present as well as future demand of individuals.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
Perishable Vs Durable Goods
Consumers purchase durable items by considering its durability.
In addition, durable goods need replacement because of their continuous use.
The demand for perishable goods depends on the current price of goods and customers’ income,
tastes, and preferences and changes frequently, while the demand for durable goods changes over a
longer period of time.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Demand
(V) Short-term and Long-term Demand:
Refers to the classification of demand on the basis of time period.
Short-term Demand
Short-term demand refers to the demand for products that are used for a shorter duration of time
or for current period.
This demand depends on the current tastes and preferences of consumers.
For example:- demand for umbrellas, raincoats, sweaters, long boots is short term and seasonal in
nature.

Long-term Demand
On the other hand, long-term demand refers to the demand for products over a longer period of
time.
Dr K Jayakrishna, Associate Professor, SMEC-VIT
Types of Demand
Long-term Demand
On the other hand, long-term demand refers to the demand for products over a longer period of
time.
Generally, durable goods have long-term demand.
The long-term demand of a product depends on a number of factors, such as change in technology,
type of competition, promotional activities, and availability of substitutes.

Short-term Vs Long-term Demand:

The short-term and long-term concepts of demand are essential for an organization to design a
new product.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Factors influencing demand
▪ Price of good or service (P)
▪ Incomes of consumers (M)
▪ Prices of related goods & services (PR)
▪ Taste patterns of the consumer (T)
▪ Expected future price of product (Pe)
▪ Number of consumers in market (N)

Demand function shows relation between P and Qd when all other variables are held constant
Qd = f(P)
ΔQd/ΔP must be negative

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Factors influencing demand
D = f (Pn,Pn…Pn-1, Y, T, P, A, E)
Where;
• Pn = Price

• Pn…Pn-1 = Prices of other goods – substitutes and complements

• Y = Incomes – the level and distribution of income

• T = Tastes, Trends and fashions

• P = The level and structure of the population, popularity

• A = Advertising, Attitude

• E = Expectations of consumers

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Factors determining demand
i. Price of the Commodity

i. Other factors which include

• Income of the consumer
• Consumer tastes and preferences
• Prices of related goods
• Expectations of future price changes
• Advertising efforts
• Quality of the product
• Distribution of Income & wealth in the community
• Standard of living and spending habits
• Age structure and gender ratio of population
• Level of taxation and tax structure
• Climate or weather conditions
• Population
Dr K Jayakrishna, Associate Professor, SMEC-VIT
Supply
It considers the relationship between the price and available supply of an item from the
perspective of the producer rather than the consumer.
• When prices of a product increase, producers are willing to manufacture more of the good in
order to realize greater profits.
• Likewise, falling prices depress production as producers may not be able to cover their input
costs upon selling the final good.
• On the other hand, when prices are higher, producers are encouraged to increase their levels of
activity in order to reap more benefit.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Supply
An underlying assumption of the theory lies in the producer taking on the role of a price taker.
Rather than dictating prices of the product, this input is determined by the market and suppliers
only face the decision of how much to actually produce, given the market price.
Similar to the demand curve, optimal scenarios are not always the case, such as
in monopolistic markets.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Supply
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Market Equilibrium
The point where supply and demand curves intersect represents the market
clearing or market equilibrium price.

An increase in demand shifts the demand curve to the right.

The curves intersect at a higher price and consumers pay more for the
product.

Equilibrium prices typically remain in a state of flux for most goods and
services because factors affecting supply and demand are always changing.

Free, competitive markets tend to push prices toward market equilibrium.

Dr K Jayakrishna, Associate Professor, SMEC-VIT
Market Equilibrium
The law of supply and demand is the theory explaining “the interaction between the supply of a
resource and the demand for that resource”.

The law of supply and demand defines “the effect the availability of a particular product and the
desire (or demand) for that product based on its price”.

Generally, a low supply and a high demand increases price, and in contrast,
the greater the supply and the lower the demand, the lower the price tends to fall.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Market Equilibrium
Consumers typically look for the lowest cost, while producers are encouraged to increase outputs
only at higher costs.

Naturally, the ideal price a consumer would pay for a good would be "zero dollars." However, such a
phenomenon is unfeasible as producers would not be able to stay in business.

Producers, logically, seek to sell their products for as high of a price as possible. However, when
prices become unreasonable, consumers will change their preferences and move away from the
product.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Market Equilibrium
A proper balance must be achieved whereby both consumers and producers are able to engage in
ongoing business transactions to the benefit of both consumers and producers.

Theoretically, the optimal price that results in producers and consumers achieving the maximum
level of combined utility occurs at the price where the supply and demand lines intersect.

Deviations from this point results in an overall loss to the economy, commonly referred to as
a deadweight loss.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Elasticity of demand

Elasticity of Demand measures the percentage change in quantity demanded for a percentage
change in the price. Simply, the relative change in demand for a commodity as a result of a relative
change in its price is called as the elasticity of demand.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Elasticity of demand
The Elasticity of Demand (EoD), also referred to as the price elasticity of demand, measures how
responsive demand is to changes in a price of a given good.

More precisely, it is the percent change in quantity demanded relative to a one percent change in
price, holding all else constant.

Demand of goods can be classified as either perfectly elastic, elastic, unitary elastic, inelastic, or
perfectly inelastic based on the elasticity of demand.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Elasticity of demand
The law of demand tells us that as the price of a commodity falls, the quantity demanded increases, and
vice versa. (Eg. Gold).

But it does not state by how much the quantity demanded increases as a result of a certain fall in the price
or by how much the quantity demanded decreases as a result of the rise in the price.

In other words it only tells us only direction of change but not the rate of change.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Elasticity of demand

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Elasticity of demand
o Price Elasticity of Demand
Measures the responsiveness of sales to change in price

o Income Elasticity of Demand

Measures the responsiveness of sales to change in consumer income

o Cross Elasticity of Demand

Measures the responsiveness of one commodity to change in the price of another commodity

o Advertising/Promotional Elasticity of demand

Measures the responsiveness of sales to change in the amount spent on advertising and
promotion

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Price Elasticity of Demand

Price Elasticity of Demand: The price elasticity of demand (Ep), commonly known as the
elasticity of demand refers to the responsiveness and sensitiveness of demand for a product to the
changes in its price.
Numerically,

∆𝑄 𝑃
𝐸𝑝 = ×
∆𝑃 𝑄

Where,

ΔQ = Q1 – Q0, ΔP = P1 – P0, Q1= New quantity, Q2= Original quantity, P1 = New price, P0 = Original

price

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Computing the Price Elasticity of Demand

Percentage change in quatity demanded

Price elasticity of demand =
Percentage change in price

Example:- If the price of an gel pen increases from Rs. 20.00 to Rs.25.00 and the amount you buy
falls from 20 to 12 pen then your elasticity of demand would be calculated as:

(12 − 20)
× 100 −40 percent
20 = = −1.6
25.00 − 20.00 25 percent
× 100
20.00

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Computing the Price Elasticity of Demand Using the Midpoint
Formula
(Q 2 − Q1 )/[(Q 2 + Q1 )/2]
Price Elasticity of Demand=
(P2 − P1 )/[(P2 + P1 )/2]

The midpoint formula is preferable when calculating the price elasticity of demand because it gives
the same answer regardless of the direction of the change

Example:- If the price of an ice cream cone increases from Rs.20.00 to Rs.25.00 and the amount
you buy falls from 20 to 12 cones the your elasticity of demand, using the midpoint formula, would
be calculated as:

(12 − 20)
(12 + 20)/2 0.5 𝑝𝑒𝑟𝑐𝑒𝑛𝑡
=− = −2.27
(25.00 − 20.00) 0.22 𝑝𝑒𝑟𝑐𝑒𝑛𝑡
(25.00 + 20.00)/2

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Price elasticity of demand

• Perfectly elastic demand - A perfectly elastic demand curve is horizontal because a

imperceptible change in price will create an infinite change in demand.

• Perfectly inelastic demand - If demand for something is perfectly inelastic, then the quantity
purchased won't change no matter what the price is

• Demand with unity elasticity

• Relatively elastic demand

• Relatively inelastic demand

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Types of Price elasticity of demand

Type Description Curve shape

Perfectly elastic Infinite Horizontal

Perfectly inelastic Zero Vertical

Unity elasticity One Rectangular hyperbola
Relatively elastic More than one Flat

Relatively inelastic Less than one Steep

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Perfectly Inelastic Demand - Elasticity equals 0
Price Demand

1. An Rs.5
increase
in price... 4

100 Quantity
2. ...leaves the quantity demanded unchanged.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Inelastic Demand - Elasticity is less than 1
Price

1. A 25% Rs.5
increase
in price... 4

Demand

90 100 Quantity
2. ...leads to a 10% decrease in quantity.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Unit Elastic Demand - Elasticity equals 1
Price

1. A 25% Rs.5
increase
in price... 4

Demand

75 100 Quantity
2. ...leads to a 25% decrease in quantity.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Elastic Demand - Elasticity is greater than 1
Price

1. A 25% Rs.5
increase
in price...
4
Demand

50 100 Quantity
2. ...leads to a 50% decrease in quantity.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Perfectly Elastic Demand - Elasticity equals infinity
Price

1. At any price
above Rs.4, quantity
demanded is zero.

Rs.4 Demand

2. At exactly Rs.4,
consumers will
buy any quantity.

3. At a price below Rs.4, Quantity

quantity demanded is infinite.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Factors affecting EoD

• Type of goods - elastic for luxuries and inelastic for necessities

• Existence of substitutes: Inelastic if substitutes exist

• No. of uses of goods: Elastic if commodity has variety of uses

• Time element: Elastic if use can be postponed

• Price of the good

• Taste and tradition

• Customer’s income: Inelastic if expenditure is only a small part of income

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Income Elasticity of Demand

The income is the other factor that influences the demand for a product. Hence, the degree of
responsiveness of a change in demand for a product due to the change in the income is known as
income elasticity of demand. The formula to compute the income elasticity of demand is:

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑙𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑

𝐼𝑛𝑐𝑜𝑚𝑒 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑 𝑬𝒚 =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐼𝑛𝑐𝑜𝑚𝑒

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Income Elasticity of Demand

For most of the goods, the income elasticity of demand is greater than one indicating that with the
change in income the demand will also change and that too in the same direction, i.e. more income
means more demand and vice-versa.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Income Elasticity - Types of Goods
Normal Goods
– Income Elasticity is positive.

Inferior Goods
– Income Elasticity is negative.

Higher income raises the quantity demanded for normal goods but lowers the quantity
demanded for inferior goods.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Cross Price Elasticity of Demand

The cross elasticity of demand refers to the change in quantity demanded for one commodity as a
result of the change in the price of another commodity. This type of elasticity usually arises in the
case of the interrelated goods such as substitutes and complementary goods. The cross elasticity
of demand for goods X and Y can be expressed as:

𝑃𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛𝑎𝑡𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑑𝑖𝑡𝑦 𝑋

𝐶𝑟𝑜𝑠𝑠 𝑝𝑟𝑖𝑐𝑒 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑 𝑬𝒄 =
𝑃𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛𝑎𝑡𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑑𝑖𝑡𝑦 𝑌

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Cross Price Elasticity of Demand

The two commodities are said to be complementary, if the price of one commodity falls, then the

demand for other increases, on the contrary, if the price of one commodity rises the demand for

another commodity decreases. For example, petrol and car are complementary goods.

While the two commodities are said to be substitutes for each other if the price of one commodity

falls, the demand for another commodity also decreases, on the other hand, if the price of one

commodity rises the demand for the other commodity also increases. For example, tea and coffee

are substitute goods

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Cross Price Elasticity of Demand

• Elasticity measure that looks at the impact a change in the price of one good has on the
demand of another good.
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 𝑄1
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑄2
• Positive-Substitutes
• Negative-Complements.

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Advertising Elasticity of Demand

The responsiveness of the change in demand to the change in advertising or rather promotional
expenses, is known as advertising elasticity of demand. In other words, the change in the demand
as a result of the change in advertisement and other promotional expenses is called as the
advertising elasticity of demand. It can be expressed as:

𝑃𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛𝑎𝑡𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑

𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑 𝑬𝒂 =
𝑃𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛𝑎𝑡𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑎𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 𝑒𝑙𝑎𝑠𝑖𝑡𝑖𝑐𝑡𝑦

Dr K Jayakrishna, Associate Professor, SMEC-VIT

Advertising Elasticity of Demand
Numerically,

𝑄2 − 𝑄1
𝑄 + 𝑄1
𝐸𝑎 = 2
𝐴2 − 𝐴1
𝐴2 + 𝐴1
Where,
Q1 = Original Demand
Q2= New Demand
A1= Original Advertisement Outlay
A2 = New Advertisement Outlay

These are some of the important types of elasticity of demand that helps in understanding the
criteria of demand for the goods and services and the factors that influence the demand.
Dr K Jayakrishna, Associate Professor, SMEC-VIT