MENÚ CONFIGURACIÓN

OF DEMAND

1

1.. AAvvaaiillaabbiilliitty y oof f SSuubbssttiittuutteess--the higher the degree of closeness of thethe higher the degree of closeness of the substitutes, the greater the elasticity of demand

substitutes, the greater the elasticity of demand for the commodity for the commodity .. 2

2.. NNaattuurre e oof f CCoommmmooddiittyy--luxuries, comforts and necessitiesluxuries, comforts and necessities.. 3

3.. WWeeiigghhttaagge ie in tn thhe te toottaal cl coonnssuummppttiioonn--if proportion of income spent on aif proportion of income spent on a commodity is large, its demand will

commodity is large, its demand will be more elastic and vice versabe more elastic and vice versa.. 4.

4. TiTime me fafactctor or in in adadjujuststmement nt of of coconsnsumumptptioion n papatttterernn-the time consumers-the time consumers need to adjust their consumption pattern to a

need to adjust their consumption pattern to a new price: the longer thenew price: the longer the time allowed, the greater the elasticity.

time allowed, the greater the elasticity. 5

5.. RRaanngge e oof f ccoommmmooddiitty y uussee--the wider the range of the uses of a product,the wider the range of the uses of a product, the higher the elasticity of demand for the

the higher the elasticity of demand for the decrease in price.decrease in price. 6

6.. PPrrooppoorrttiioon on of mf maarrkkeet st suupppplliieedd--if less than half of the market is supplied at if less than half of the market is supplied at  the ruling price, price elasticity of demand

the ruling price, price elasticity of demand will be higher than 1 and if will be higher than 1 and if  more than half of the market is

MANAGERIAL USES OF ELASTICITY OF

MANAGERIAL USES OF ELASTICITY OF DEMANDDEMAND

1.

1. DeDetetermrmininatatioion of n of PrPricice Une Undeder Mor Mononopopolyly-a-a) If ) If ththe dee demamand fnd for hor hisis product is elastic he will earn more profit by fixing a low price. Low product is elastic he will earn more profit by fixing a low price. Low price means large sales and hence, large total revenue. b) If the price means large sales and hence, large total revenue. b) If the demand is inelastic, he will be in a position to fix up high price. demand is inelastic, he will be in a position to fix up high price. 2.

2. BaBasisis os of Pf Pricrice De Disiscrcrimimininatatioion- n- WhWhen en a ma mononopopololist ist seselllls hs his is prprododucuct at att different prices, it is called price

different prices, it is called price discrimination. On the basis of discrimination. On the basis of  elasticity he can charge various prices from the customers.

elasticity he can charge various prices from the customers. 3.

3. DeDetetermrmininatatioion on of Wf Wagageses-I-If tf the he dedemamand nd fofor lr lababouour ir in an an in indndusustrtry iy iss elastic, strikes and other trade union tactics will not be of any avail in elastic, strikes and other trade union tactics will not be of any avail in raising wages.

raising wages. 4.

4. AdAdvavantntagage to Fe to Fininanance Mce Mininisisteter-r-a) Ta) Taxaxes oes on gon goodods has haviving eng elalaststicic

demand will yield less revenue. It is because of the fact that taxes will demand will yield less revenue. It is because of the fact that taxes will raise their prices and thus bring down their demand and finally it

raise their prices and thus bring down their demand and finally it

means less revenue, b) Goods having inelastic demand are taxed at a means less revenue, b) Goods having inelastic demand are taxed at a higher rate. No doubt the price of the goods will rise on account of 

higher rate. No doubt the price of the goods will rise on account of  these taxes but there will be

5.

5. Determination Determination of of Prices Prices of of Public Public Utilities-Where Utilities-Where the the demand demand for for services services isis inelastic, a high price is charged, while in

inelastic, a high price is charged, while in the case of elastic demand athe case of elastic demand a lower price is charged. That is why, household consumers are charged a lower price is charged. That is why, household consumers are charged a high rate of electricity than industrial or ag

high rate of electricity than industrial or agricultural customers.ricultural customers. 6.

6. InInteternrnatatioional Tnal Traradede-T-Thohose ese expxpororts wits with inth inelelasastitic demc demanand wid will fell fetch htch higighh price.

price. 7.

7. ThThe kne knowowleledgdge of ine of incocome eme elalastisticicity cty can ban be use usefeful iul in fon forerecacaststining deg demamandnd,, when a change in personal incomes is expected. It thus

when a change in personal incomes is expected. It thus helps in avoidinghelps in avoiding over production or under production.

over production or under production. 8.

8. ThThe coe concncepept of ct of croross ess elalastisticicity ity is of vis of vitatal iml impoportrtanance in cce in chahangngining prg pricice of e of  products having substitutes and complementary goods. If cross elasticity in products having substitutes and complementary goods. If cross elasticity in response to the price of substitutes is greater

response to the price of substitutes is greater than 1, it would bethan 1, it would be inadvisable to increase the price; rather, reducing the price

inadvisable to increase the price; rather, reducing the price may prove moremay prove more benecial.