Skip to main content
Loading Explore guides…
Elasticity of Demand Basics · Acedra
Home
Explore
Economics
Elasticity of Demand Basics
Sign in to save
Chat
If YouTube asks you to sign in, open the video on YouTube.
Watch on YouTube
Reload player
Transcript
61 segments
Copy
Hide video
0:00
What's up everyone, welcome back to the channel. Guys, this is day 20 of our 100 Days Commerce Pro. And today we are going to start a new chapter which is called Elasticity of Demand. Introduction, Consumer's Equilibrium, Demand, we have already finished. Today we are going to start the 4th chapter which is called Elasticity of Demand. Tomorrow, although it is Saturday, it is our revision day, but because last day, that is, I could not upload an Economics video tomorrow so that we come in
0:31
line with our schedule. So you will get an ECO video tomorrow. The rest of the accounts are running normally. So let's start Elasticity of Demand quickly and try to understand some of its basics today.
0:44
Let's go quickly, let's begin.
1:01
So sir, what is Elasticity of Demand?
1:04
Now see kids, you read a topic in demand, Law of Demand. What did Law of Demand say? Law of Demand said that if the price increases, then quantity demanded will decrease. If the price decreases, then quantity demanded will increase. That is, in price and demand, this law told us the inverse relationship. That is, in price and demand, this law told us the inverse relationship. Now see kids, we have learned what kind of relationship works. And we have also learned how demand changes with price.
1:40
But nowhere it was told how much change happens. So what does Elasticity mean here? Elasticity means change. Which thing is how elastic? Which thing is able to change so much? Like we say at home that it is elastic. No matter how much rubber band you pull, it will pull. If I pull this, it will not pull. There is no elasticity in it. So how elastic something is, it means that how much its shape is able to change. So in Elasticity of Demand, we are mainly going to learn how much change comes
2:15
in demand with respect to price. Now see, the Elasticity of Demand, kids, Elasticity can be of three types.
2:28
Elasticity can be of three types. One is Price Elasticity.
2:37
One is Income Elasticity.
2:42
And one is Cross Elasticity. There are many more like this. But mainly there are only three in our syllabus. There are not even three, there is only one. I am just telling you these two. So see kids, what does Price Elasticity mean? Price Elasticity means how much change is coming in Quantity Demanded due to change in price. If Quantity Demanded is changing, how much change has come due to change in price, that is called Price Elasticity of Demand. What does Income Elasticity mean?
3:13
How much change has come in demand due to change in income. If your income changes, you still change demand. So how much change has come in demand due to change in income, that is called Income Elasticity of Demand. What does Cross Elasticity mean? Cross Elasticity means how much change has come in your demand due to change in price of Related Good. Related Good can also be Complementary Good. Related Good can also be Substitute Good.
3:39
So if there is a change in the price of your Substitute or your Complementary Good, if there is a change in the price, then due to that, how much change has come in your demand, that is called Cross Elasticity. For example, I sell Tea.
3:53
I am selling Tea.
3:56
So first of all, I will see how much change has come in the demand of Tea if the price of Coffee is changing. So see, I have Substitute. How much change is happening in the price of Substitute, due to that, what change has come in my demand, that is called Cross Elasticity. If I see, how much change has come in the demand of Tea then I will call it Income Elasticity. If I say, how much change has come in the demand of my tea I will call it Price Elasticity. Understood?
4:30
So you have understood mainly what does Elasticity mean. So what does Elasticity mean, children? Elasticity means how much change is happening in the demand. Sir, how will we write this numerically? See, the formula is ED i.e. Elasticity of Demand is equal to Percentage Change in Quantity Demanded divided by Percentage Change in Price.
4:55
We will mainly do the numerical portion in the next class. Today I am completing the entire theory portion.
5:01
So see, Percentage Change in Quantity Demanded means how much change has come in Quantity Demanded. Let's suppose, I tell you that earlier the price was Rs. 10. Now the price has become Rs. 20.
5:12
Earlier the demand was Rs. 200.
5:16
Now the demand is Rs. 100. Because the price has increased, so the demand has decreased. The old price is called P0. The new one is called P1. Similarly, the old quantity is called QD0. The new one is called Q1. So even if you put a new zero here, it will still work. Even if you write only PP, it will still work. So if I write only P here, it will still work. If I write only Q here, and write Q1 here, it will still work. So how does Percentage Change in Quantity Demanded come out?
5:46
It comes out as Change in Quantity upon Quantity into 100. And how does Percentage Change in Price come out? Change in Price upon Price into 100. This triangle is called Delta. Delta means change.
5:59
So how does Delta Q come out? Q1-Q. And how does Delta P come out? P1-P. So from here we get Delta P. How much change is there? P1-P. 20-10. So there is a change of 10. Here we get Delta Q. Q1-Q. 100-200. So this will come as 100-Q. How much will this come as? 100-Q. So here we will write Percentage Change in... What will we write here? Delta Q. Which is 100-Q. Upon Q. How much was Q?
6:41
See. I will take it down.
6:46
Delta Q upon Q into 100. How much is Delta Q?
6:53
100 upon 200 into 100. So 0, 0, 0, 0. This is 50. Here there is a change of 50%. Now see here. We can write it as negative because it was coming in negative. Here Delta P upon P into 100 will come. So here what will come? 10 upon 10 into 100. 0, 0, 10 upon 10 into 100. So this is a change of 100%. How much is this coming as? Change of 100%. So what will be the value of my elasticity?
7:32
1 upon 2 i.e. 0.5. My answer will be 0.5 in minus.
7:40
So this 0.5 of minus, what does this minus show? Elasticity is also not negative. Minus only shows negative relationship, inverse relationship, price or quantity demanded. So this negative sign, negative sign only shows the inverse relationship.
8:08
Negative sign shows inverse relationship between price and quantity demanded. Between what? Between price and quantity demanded. Okay? It is clear. You have to take care of this. So what is ED? Change in quantity demanded upon percentage change in quantity demanded upon percentage change in price. And how does it come? I have shown you. Got it? In this way you can numerically calculate elasticity. We will discuss this tomorrow. Now you have to learn one more thing. What is that?
8:45
Degrees of Price Elasticity of Demand.
8:55
In this, kids, we have 5 types of elasticities. Like now answer is 0.5. So kids, ED can also be 0.
9:09
ED can also be less than 1.
9:12
ED can also be 1.
9:15
ED can also be greater than 1. ED can also be infinite.
9:20
Okay? Now sir, when is 0? Kids, 0 is when I say that sir, there is no change in demand. Price is going up and down. But there is no change in demand. Demand is exactly the same. So what do we call that? ED is exactly 0. Means perfectly inelastic demand.
9:45
Inelastic means there is no change.
9:49
Okay? And what does ED infinity mean? ED infinity means that there is such a small change in price that it is negligible. There is such a small change that it is negligible. Let's suppose there was a price of 10. Now the price has become 9.999999. Such a minor change. And unlimited demand has increased. Price is such a small change and unlimited demand has increased. What is this called? ED infinite. This is called perfectly elastic demand. Keep this in mind kids.
10:22
This is just being told to teach you. These are not both in real life. Neither ED is infinite in real life nor ED is 0 in real life. These are both imaginary situations and are just being taught to teach you that what does ED 0 mean? What does ED infinity mean? When is ED 1? When the percentage change in quantity is demanded, the percentage change in price is the same. Right? Like we read the formula just now. Percentage change in quantity demanded divided by percentage change in price.
10:55
So if I say that there is a 50% change here and there is a 50% change here then 1 will come. Right? So when is ED 1? When the change in both is equal. So what do we call this? Unitary elastic.
11:09
Unitary elastic demand.
11:13
Okay. When less than 1 is there then we call it less elastic demand.
11:22
When more than 1 is there then we call it highly elastic demand.
11:30
So see kids we can have 5 types of degrees which you should know. ED 0 Inelastic Less than 1 Less elastic 1 Unitary elastic Greater than 1 Highly elastic Infinite Perfectly elastic Okay kids Sir, how are their curves made? Kids, if I talk about curves then see how you have to take the curve of 0 that brother how much change will come in price demand has become constant here. Assume this that 100 and 200 demand will remain 200 price may become 10 may
12:09
become 20 may become 30 price may do this may do this may do this so in demand a straight line will be made we call this ED 0 what we call this ED 0 and when is infinite?
12:26
Infinite is there kids, when in price even a slight change minor then also demand will change.
12:36
Let's suppose price was 30 then demand was 100 let's suppose okay now price came 29.99 then also it will come here at 30 it became 200 similarly it became 300 so when it runs like this horizontal straight line this was vertical straight line we call this ED 0 what we call this we call this ED infinite that there is a minor change in price first 100 then 200 then 300 we call this ED infinite okay where is 1?
13:08
1 is there kids, as much change in price as much change in quantity in demand means as much change here so this is very basic curve coming down like this we call this ED 1 okay after that sir ED more than 1 what we call this? ED more than 1 we call this when it is more flat like this because the elasticity means percentage change in quantity demanded that is more as compared to percentage change in price and less elastic which is there it is little steep how will it be little?
13:43
steep it will be little like this I will call this ED less than 1 okay so if I talk about curves kids take screenshot of this if I talk about curves so as the elasticity will increase curve will become flat ED 0 is completely straight less than 1 little like this unitary elastic little like this more than 1 more like this infinite like this so the curves of elasticity as the elasticity will increase more is the elasticity flatter will be the curve so see this was 0 okay what was this?
14:24
ED 0 what is this? less than 1 what is this? 1 what is this? greater than 1 what is this? infinite so as it goes up elasticity will increase so flatter the curve more will be the elasticity you should know this understood kids? now we have one more thing factors affecting elasticity what are the factors because of which elasticity is affected now see factors affecting elasticity you have to tell one will be elastic or one will not be elastic means more
15:09
elastic or less elastic you don't have to go into it in detail just have to tell more elastic or less elastic okay so see what are the factors kids in factors we have first factor nature of the commodity what is commodity? is that commodity a necessity for you? is that commodity a comfort for you? or is that commodity a luxury for you? is that necessity for you? is that comfort for you? or is that luxury for you? now see what is necessity big house of bread for survival so in necessity there
15:43
is no change how much price increase how much price reduce for survival if there is necessity then it is needed so in necessity we say it is the least elastic normally very less change in its quantity due to change in price because it is necessity it is needed if there is any medicine for someone then it is of course if he wants to survive then he needs medicine so in its elasticity there will be no change its demand will remain how much price
16:12
increase how much price reduce so if there is any commodity necessity then it is not much change if it is comfort like fan AC refrigerator these are elastic if their price will be less then people will buy more of course if their price will be less then people will buy more so their demand is elastic go on luxuries what is luxury luxury cars luxury mobile phones if their price reduces then people run and buy it is highly elastic suppose Mercedes is of 80 lakhs
16:42
company has taken an offer of 50 lakhs for 2 days people will buy it of substitute now see if there is any thing which has no substitute monopoly if there is monopoly then how much price will or decrease its demand will not change take railway there is no substitute of railway if they will increase the rent then people will have to travel they cannot do anything so things which have no substitute their demand is constant it is less elastic but
17:23
those which have substitute so people with little change leave it shift to something else shift to substitute it will be more elastic so who has substitute will be more elastic who does not have substitute will be less elastic income level depends on your income it also depends on people who have high income level it does not matter to how expensive something is how cheap he does not even see the if he wants to buy something then he has to buy if your
17:50
income level is less then it will be more elastic if you have of price what is the condition of see the cheap things matchbox instead of 2 rupees 1 rupee 50 will be so it is not that you truck and bring it home so cheap things demand is inelastic or it is very less elastic expensive thing is getting cheap so you will run and take it so its demand will be a little more elastic so if there is such a commodity whose price is very low
18:36
then it will be less elastic if there is such a thing whose price is more then it will be elastic if there is such a thing whose demand is urgent you can postpone it means it is a cold drink I feel like drinking a cold drink it is not if I will not drink it then I survive if I drink it tomorrow drink it day after then I can wait that may be cheap day after so the thing which you can postpone its demand is elastic you can change it up and down which is urgent
19:09
cannot be it is urgent now it is urgent its demand is inelastic no matter how much it is you have to take it so the thing which you can postpone is elastic which you cannot postpone is inelastic or less elastic number of uses number of uses means if there are many uses of if there are many uses you use milk in many places milk, curd, paneer, ghee, butter, curd don't know where you use curd and curd are same where you use ice cream, barfi, you use in different
19:41
places so if its price will be then demand will be more more people will make things in which we are talking about how much is the portion of total expenditure of it I spend 20,000 rs in which I spend 2rs on matchstick so if it has a small share then its demand will be less elastic it doesn't matter but if in 20,000 rupees 7,000, 8,000 rs goes to of my fuel. So if the price of fuel is more or less, then it is a high share thing in my total expenditure.
20:24
There is a big amount in my total expenditure, so it will make a difference to me there. So there its demand will be elastic. So if it is a small share, it will not make a difference to me. If it is a very big share, then it will make a difference. Then we have time period, habits. There are many points, kids, any of you can remember 3 to 4 points.
20:42
Now see what is the time period? It is being said that the elasticity depends on the time period. The time period of something can be 1 day, 1 week, 1 year, several years. Demand is inelastic in a short time period. If you have to take something in a short time period, then demand will be inelastic. If you have more time, 1 week, 1 month, then you can think about it, its demand can be elastic.
21:07
Habits, if something comes in your habit, then its demand will be inelastic. If someone has a habit of alcohol, then it does not matter whether the price is getting less or more. So the thing that becomes your habit, its demand becomes inelastic. The thing that is not your habit, its demand will be elastic. So these were some factors that impact elasticity. I taught you about factors. Along with that, if I talk, then we had discussed degrees also.
21:42
Ed, infinite, ed0, less than 1, greater than 1, 1, we also discussed this. Now its numerical portion is left, which we will discuss tomorrow. I will make you do its numerical portion only on Saturday.
21:54
To a great extent, your elasticity will also be clear. Today theory portion is done, tomorrow we will do numerical portion. And this topic will also end. Thank you so very much guys for joining in. I am gonna see you all super soon. Till then see ya, take care, bye bye, keep growing and keep glowing.
Here to help you learn
Sign in to keep a private conversation with your course tutor.
Ask me anything about the material…
Sign in to chat