Elasticity of Demand and Its Factors for Mb0042 Mba

September 4, 2017 Economics

Elasticity of Demand and Its Factors for MB0042 MBA Assignment Tuesday, June 14, 2011 This is the solved assignment of – “What is Elasticity of Demand? Explain the factors determining it. ” It is written for MB0042 (Managerial Economics) SMU MBA assignment. We already have explained about price discrimination and categories of environmental stressors. Factors Influencing Price Elasticity of Demand: Nature of Commodity – By the nature of commodity, we divide them into comfort, luxury and necessity.

For luxuries and comforts the Ep> 1 because when prices of these commodities decrease, the demand for these commodities will also increase; whereas in case of necessities, the Ep<1 because when the price of these commodities decrease, the demand for these commodities will increase by less than proportionate. Availability of substitutes – For those commodities which have enough substitutes in the market, the price elasticity is of more than one, because when the price of a commodity has many substitutes, the consumer will shift to the substitute available in the market.

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Number of Uses – Those commodities which have many or multiple uses like coal, milk. For such commodities, the elasticity is more than one as they can be used for more than one purpose. So, if the price of such commodity decreases, there will be increase in the demand. But for those commodities which have very less use of limited uses, the demand will be relatively inelastic. Durability of commodity – Durable goods is those which last for many years. E. g. : motorcycle, TV, washing machines, etc.

The price elasticity of demand for durable goods will be more than one because when the price of such commodities increases, the demand will increase, but for the commodities like fish, vegetables etc. , which come under perishable goods, the elasticity of demand will be less than one as these commodities cannot be stored. So even if the price decreases, the demand will not increase. Consumer’s Income – The price elasticity of demand will be relatively elastic for overall commodities which the consumer’s income is high. What is Price Discrimination? Explain the basis of Price Discrimination. ” You need to solve the assignment question for MBA Semester 1 MB0042 – Managerial Economics. It is the assignment of fall session. You can check out other assignment questions also such as – Different Categories of Environmental Stressors and Process of Negotiation. The measurement of this sensitivity in terms of percentage is called Price Elasticity of Demand.

According to Marshall, Price Elasticity of Demand is the degree of responsiveness of demand to the chance in price of that commodity. Perfect elastic demand is a case of theoretical extremity. When a small change in price leads to a very substantial change in quantity demand, the price elasticity is numerically infinite. When a demand for the product is independent of price, such demand remains unaffected with any magnitude of change in price.

To make relatively elastic simpler, we can say that any small change in price leads to a big change in quantity demanded. It can be an increase or decrease. When there is less then proportionate change in demand to the change in price, we say that the demand is relatively inelastic that is Ep<1. In numerical co-efficient of price elasticity of demand in different cases, we find that its value ranges from zero to infinite.

For those commodities which have enough substitutes in the market, the price elasticity is of more than one, because when the price of a commodity has many substitutes, the consumer will shift to the substitute available in the market. The price elasticity of demand for durable goods will be more than one because when the price of such commodities increases, the demand will increase, but for the commodities like fish, vegetables etc. , which come under perishable goods, the elasticity of demand will be less than one as these commodities cannot be stored

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