Prepared by :

Dr. K. BARANIDHARAN
PROF.MBA
SRI SAIRAM INSTITUTE OF TECHNOLOGY
CHENNAI

Sri Sairam Institute of Technology 2
Engineering
Economics& Financial
Accounting
3 15 August 2014
Types of elasticity
Pilot Publishing Company
Ltd. 2005
Type of elasticity of demand
Price elasticity of demand

I ncome elasticity of demand

Cross elasticity of demand

Advertising elasticity of demand

TYPES OF ELASTICITY

PRICE ELASTICITY DEMAND
Elasticity of demand, in general refers to
price elasticity of demand.
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 and
the demand is inverse.
=
(2 1)/1
( )/

=



Q1 = quantity before change Q2 = quantity after change
P1 = price before change P2 = price after change
Model problems Refer the Book page Number 39 to 44
INCOME ELASTICITY OF DEMAND
The quantity of a commodity in
response to a given change in
income of the customer.
Income elasticity is normally
positive, which indicates that the
consumer tends to buy more and
more which every increase in
income
ED1 =
(Q2 Q1)/Q1
( )/

=



Q1 = quantity before change Q2 = quantity after change
I1 = daily income before change I2 = daily income after change
Model problems Refer the Book page Number 39 to 44
CROSS ELASTICITY OF DEMAND
The quantity demanded of
a commodity in respect to a
change in the price of a
related goods, which may
be substitute or
complementary.
EDc =
(Q2x Q1x)/Q1x
( )/

C =



Q1 = quantity before change Q2 = quantity after change
P1y = price before change P2y = price after change
Model problems Refer the Book page Number 39 to 44
ADVERTISING ELASTICITY
It refers to an increase in the sales
revenue because of change in
advertising expenditure.
In other words, there is a direct
relationship between the amount of
money spent on advertising and its
impact on sales.
Advertising elasticity always positive
EDc =
(Q2 Q1)/Q1
( )/

A =



Q1 = quantity before change Q2 = quantity after change
A1 = advertising budget before change A2 = advertising budget after change
Model problems Refer the Book page Number 39 to 44


Price elasticity of demand


Price Elasticity of Demand
The responsiveness of demand
to changes in price
Where % change in demand
is greater than % change in price
elastic
Where % change in demand is less
than % change in price - inelastic

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Elasticity Coefficients
Elastic Demand (E
d
> 1): the percentage change
in quantity demanded > the percentage change
in price.
Inelastic Demand (E
d
< 1): the percentage
change in quantity demanded < the percentage
change in price.
Unit Elastic Demand (E
d
= 1): the percentage
change in quantity demanded = the percentage
change in price.
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Elasticity Coefficients
Perfectly Elastic Demand (E
d
=):
quantity demanded is infinitely
responsive to a change in price.
Perfectly Inelastic Demand (E
d
=0):
quantity demanded is completely
unresponsive to changes in price.
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Exhibit 3: Price Elasticity of Demand