NEXT DEFINITION
Demands for Grants
Demand for Grants is the form in which estimates of expenditure from the Consolidated Fund are submitted in pursuance of Article 113 of the Constitution.
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Definition: Demand sensitivity is also known as price elasticity of demand and should not be confused with price elasticity of supply. It shows the responsiveness of the demand for a product to a change in its price. Factors which impact demand sensitivity include – availability of substitutes, its necessity, distribution channels, permanent or temporary price change, etc.
Description: Demand sensitivity is referred to the change in demand for a product when its price is changed by a small amount.
Price Elasticity of demand = %change in quantity demanded/% change in price of a particular product
To understand the implication of this formula, we have to study the impact of a small change in price and its resultant impact on the quantity demanded. If a small change in the price of the product is accompanied by a large change in quantity, then the product is said to be elastic or we could also say that the product is responsive to price change.
We say that a product is inelastic when even a large change in price does not result in huge demand for the product. We can measure demand elasticity of demand on a scale of 0 to 1 and greater than 1.
If the price elasticity of demand is equal to zero then the demand is perfectly inelastic. If it is in between 0 and 1, demand is known as inelastic. If the price elasticity of demand is equal to 1, it is known as unit elastic, and finally if it is greater than one, the price elasticity of demand is known as perfectly elastic.
Let’s understand this with the help of an example. If the quantity demanded for a good increases by 20% in response to 15% decrease in price, the price elasticity of demand would be 20%/15% = 1.3. Here the value is greater than 1 which signifies that the demand is perfectly elastic.
NEXT DEFINITION
Demands for Grants
Demand for Grants is the form in which estimates of expenditure from the Consolidated Fund are submitted in pursuance of Article 113 of the Constitution.
Read More
Business men know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good idea of what part of a demand curve looks like if it is to make good decisions. If Rick's Pizza raises its prices by ten percent, what will happen to its revenues? The answer depends on how consumers will respond. Will they cut back purchases a little or a lot? This question of how responsive consumers are to price changes involves the economic concept of elasticity.
As developed by Alfred Marshall, the concept of elasticity was applied to elasticity of price. But later on, the concept was made more broader. Elasticity of demand is a concept of showing the responsiveness of demand. As we well-known earlier, changes in demand can be caused by several factors which determine demand for a good or commodity. Obviously, demand is responsive to each of these factors i.e. But all the factors are not equally important from the point of view of either theoretical analysis or practical means. For example, take tastes or preference of the consumers, is an exogenous factor and there is no point in measuring the responsiveness of demand to this factor, though in practice this factor is important. Efforts, therefore are made to measure the responsiveness of demand to changes in certain important factors like price, income, prices of related products, sales promotion etc.
Let us take price as a factor for understanding the elasticity concept. When considering the responsiveness of the quantity demanded to change in price of a commodity, we may make some statements such as : 'The demand for sugar was more responsive to price-changes twenty years ago than it is today', or the demand for milk responds more to price changes than does the demand for tea'. It is thus clear that the degree of responsiveness of quantity demanded to price changes varies from product to product. Elasticity of demand indicates the degree of responsiveness of quantity demanded to changes in market price. Hence this becomes the concept of price-elasticity of demand.
DEGREES OF PRICE ELASTICITY
Different commodities have different price elasticities. Some commodities have more elastic demand while others have relative elastic demand. Basically, the price elasticity of demand ranges from zero to infinity. It can be equal to zero, less than one, greater than one and equal to unity.
According to Dr. Marshall : "The elasticity or responsiveness of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price and diminishes much or little for a given rise in price."However, some particular values of elasticity of demand have been explained as under ;
Types of Price Elasticity of Demand:-
Perfectly elastic demand.
Perfectly inelastic demand.
Relatively elastic demand.
Relatively inelastic demand.
Unitary inelastic demand.
MEASUREMENT OF PRICE ELASTICITY OF DEMAND
There are five methods to measure the price elasticity of demand.
Total Expenditure Method.
Proportionate Method.
Point Elasticity of Demand.
Arc Elasticity of Demand.
Revenue Method.
Total Expenditure Method
Dr. Marshall has evolved the total expenditure method to measure the price elasticity of demand. According to this method, elasticity of demand can be measured by considering the change in price and the subsequent change in the total quantity of goods purchased and the total amount of money spend on it.
Proportionate Method
This method is also associated with the name of Dr. Marshall. According to this method, "price elasticity of demand is the ratio of percentage change in the amount demanded to the percentage change in price of the commodity." It is also known as the Percentage Method, Flux Method, Ratio Method, and Arithmetic Method.