Theory-of-Demand Notes | EduRev

: Theory-of-Demand Notes | EduRev

 Page 1


1 
11 : Theory of Demand 
Page 2


1 
11 : Theory of Demand 
2 
Prof. Trupti Mishra, School of Management, IIT Bombay 
?Simultaneous shift in demand and supply 
?Price elasticity of demand 
?Degree of price elasticity of demand 
?Elasticity and revenue 
?Factors influencing price elasticity of demand 
 
Recap from last session 
Page 3


1 
11 : Theory of Demand 
2 
Prof. Trupti Mishra, School of Management, IIT Bombay 
?Simultaneous shift in demand and supply 
?Price elasticity of demand 
?Degree of price elasticity of demand 
?Elasticity and revenue 
?Factors influencing price elasticity of demand 
 
Recap from last session 
Income elasticity (E
M
) measures the responsiveness of quantity 
demanded to changes in income, holding the price of the good & 
all other demand determinants constant. 
 
 
 
 
Income Elasticity of Demand 
dd
M
d
% Q Q
M
E
% M M Q
Prof. Trupti Mishra, School of Management, IIT Bombay 
Page 4


1 
11 : Theory of Demand 
2 
Prof. Trupti Mishra, School of Management, IIT Bombay 
?Simultaneous shift in demand and supply 
?Price elasticity of demand 
?Degree of price elasticity of demand 
?Elasticity and revenue 
?Factors influencing price elasticity of demand 
 
Recap from last session 
Income elasticity (E
M
) measures the responsiveness of quantity 
demanded to changes in income, holding the price of the good & 
all other demand determinants constant. 
 
 
 
 
Income Elasticity of Demand 
dd
M
d
% Q Q
M
E
% M M Q
Prof. Trupti Mishra, School of Management, IIT Bombay 
 
?Positive for a normal good 
?Negative for an inferior good 
?Zero for a neutral goods 
Income Elasticity of Demand 
Prof. Trupti Mishra, School of Management, IIT Bombay 
Page 5


1 
11 : Theory of Demand 
2 
Prof. Trupti Mishra, School of Management, IIT Bombay 
?Simultaneous shift in demand and supply 
?Price elasticity of demand 
?Degree of price elasticity of demand 
?Elasticity and revenue 
?Factors influencing price elasticity of demand 
 
Recap from last session 
Income elasticity (E
M
) measures the responsiveness of quantity 
demanded to changes in income, holding the price of the good & 
all other demand determinants constant. 
 
 
 
 
Income Elasticity of Demand 
dd
M
d
% Q Q
M
E
% M M Q
Prof. Trupti Mishra, School of Management, IIT Bombay 
 
?Positive for a normal good 
?Negative for an inferior good 
?Zero for a neutral goods 
Income Elasticity of Demand 
Prof. Trupti Mishra, School of Management, IIT Bombay 
If Em > 1, Luxury good - More than proportionate 
increase in sales 
If Em < 1, Necessity Goods - Less than proportionate 
change in sales 
If Em = 1, Semi Luxury goods - Almost proportionate 
change in sales 
 
Income Elasticity of Demand 
Prof. Trupti Mishra, School of Management, IIT Bombay 
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