Category: Commerce Notes PPT

Demand is the economic principle that refers to a consumer’s desire to purchase goods and services and its willingness to pay a price for a specific good or service. Other factors being constant, with an increase in the price of a good or service it will decrease the quantity demanded and vice versa.  Market demand, whereas, is the total quantity that is demanded across all the consumers in a market for a particular good. This aggregate demand is defined as the total demand for all the goods and services that are present in an economy. Multiple stocking strategies are used to handle this demand.

Recognizing the Demand Schedule

The most common demand schedule has two columns. In the first column, prices for products are shown in ascending or decreasing order. The quantity of the product required or demanded at that price is listed in the second column. The pricing is set after thorough market research.

When the data from the demand schedule is graphed to generate the demand curve, it provides a visual representation of the price-demand connection, allowing for simple calculation of demand for a product or service at any point along the curve.

Explain Demand Schedule 

The Law of Demand states that when the price of a commodity falls, the demand increases and also when the price of the commodity rises, the demand decreases, while other things remain constant. So, there exists an inverse relationship between the price and quantity that is demanded of this commodity. The functional relationship between the price and the quantity demanded can be represented as:

Dx = f(Px). 

Now we should know what a Demand Schedule is.

This is a statement in a tabular form that shows different quantities which are being demanded at different prices. There are two types of Demand Schedules:  

In economics, a demanding schedule is a table that shows the quantity that is demanded of a good or service at different price levels. A demand schedule can also be graphed as a continuous demand curve on a chart where the Y-axis represents the price and the X-axis represents the quantity.

Demand Schedules vs. Supply Schedules

A demand schedule is typically used together with a supply schedule, that shows the quantity of a good which would be supplied to the market by the producers at given price levels. By drafting these graphs, both the schedules on a chart with the axes described above, it is possible to obtain a graphical representation of the supply and the demand dynamics of a particular market.

Also, in a typical supply and demand relationship, as the price of a good or the service rises, the quantity demanded drops and falls. When all these factors are equal, the market reaches its equilibrium, there the supply and demand schedules intersect with one another. At this point, the corresponding price is the equilibrium market price, and the corresponding quantity is the equilibrium quantity that is exchanged in the market.

Additional Factors on Demand

Price not being the sole factor determines the demand for a particular product. The demand may also be affected by the amount of disposable income available, shifts in the quality of the goods in question, effective advertising, and other weather shifts.

Price changes in the related goods or services may also affect the demand. Here the price of one product rises, and the demand for a substitute may rise, also a fall in the price of a product may increase the demand for the complementary goods. For example, a rise in the price of one brand of the coffeemaker will increase the demand for a relatively cheaper coffee maker that is produced by a competitor. If the price of all coffee makers falls, the demand for coffee, which is a complement to the coffeemaker market, may rise as consumers may want to take advantage of the price declining in the coffeemakers.

Individual Demand Schedule 

This is a demanding schedule that illustrates the demand of an individual customer for a commodity in relation to the price. 

Let us study, by referring to an example.

The above schedule represents the individual demand schedule. Here when the price of the commodity is ₹100, its related demand is 50 units. Also, when the price is ₹500, then its demand decreases to 10 units.

So, we can conclude that as the price falls the demand increases and as the price rises the demand decreases (Vice Versa). Thus, we see there is an inverse relationship between the price and the quantity demanded.

Individual Demand Curve

Below is a graphical representation of the individual demand schedule, where the X-axis represents the demand and the Y-axis represents the price of the commodity.

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The above demand curve shows the demand for the fuel that is Gasoline. The price of gasoline is 3.5 per litre, the demand is 50 litres and as the price is 0.5 per litre, the demand is 250 litres.

The Elasticity of Demand

Demand elasticity, also known as price elasticity of demand, is the degree to which rising prices translate into decreased demand. The demand elasticity of corn is 1 if a 50% increase in corn prices induces a 50% decrease in the amount of maize desired. The demand elasticity is 0.2 if a 50% increase in maize prices only reduces the amount desired by 10%. For items with greater elastic demand, the demand curve is shallower (near to horizontal), whereas, for products with less elastic demand, the demand curve is steeper (closer to vertical).

A new demand curve must be generated whenever a factor other than price or quantity changes. Assume that the population of a region grows, resulting in an increase in the number of mouths to feed. In this situation, even if the price remains unchanged, more maize will be requested, causing the curve in the graph below to move to the right (D2). To put it another way, demand will rise.

Conclusion

Demand is the economic principle that refers to a consumer’s desire to purchase goods and services and its willingness to pay a price for a specific good or service. The Law of Demand states that when the price of a commodity falls, the demand increases; while other things remain constant.

People often make the mistake of using the terms ‘customer’ and ‘consumer’, interchangeably. While in some cases customer and consumer may indicate the same section of people, it is still vital to understand the key differences between these two widely used terms.

In general usage, the terms consumer and customer are frequently interchanged. Simply said, a consumer is someone who consumes a product. A customer, on the other hand, is someone who buys or purchases a thing.

Now the question arises, what is the difference between a customer and a consumer? Nonetheless, the consumer is indeed the primary goal in the commercial world. A customer, on the other hand, consumes or uses the product. He is the only one who can reveal the outcome. A consumer decides whether or not a product or service is of high quality.

 

Defining Customers: Who is a Customer?

To understand and appreciate the distinction between customers and consumers, one should start by understanding the definition of each. Derived from the word ‘custom’, customers are defined as those individuals who buy products or services after paying the monetary price for the same. For example, XYZ Ltd. buys a thousand cartons of eggs and pays Rs.50000 for them. Thus, XYZ becomes a customer for that commodity.

Customers can also be referred to as clients or buyers. Therefore, any person or business buying goods or services regularly from a seller is known as a customer.

A customer is someone who buys goods and services from a vendor regularly and pays for them to meet their requirements. Many times, a customer who purchases a product is also the consumer, although this is not always the case. When parents buy a product for their kids, for example, the parent is the customer and the kids are the consumers. Clients or buyers are other terms for them.

 

Different Types of Customers

There are a few different categories of customers:

• Loyal Customer- These customers are satisfied with the services and quality of products from a brand or store. Therefore, they tend to return multiple times for purchases

• Trade Customers- These customers buy products to add value to the items and resell them for a profit. For example, manufacturers, wholesalers, retailers and other such entities are trade customers since they are not the end-user of the goods they purchase.

• Final Customers- People who purchase products for their own use are known as final customers. In such a case, no reselling or profit generation takes place after goods purchase.

• Discount Customers- These customers only purchase goods and items when there is a discount applied to the products.

• Impulsive Customers- These customers are difficult to persuade because they don’t buy a specific product but rather buy anything they think is excellent and fruitful at the time.

• Need-Based Customers- These customers tend to limit their purchase to only those items or goods, which they require.

• Wandering Customers- These are the least valuable customers because they are unsure of what they want to buy.

Defining Consumer

Someone who buys something for their personal use and subsequently consumes it is referred to as a consumer. The consumer cannot resell the product or service, but he or she can use it to support themselves. A consumer is a person who consumes a product or service without the permission of the buyer. A consumer, in simple words, is someone who buys or utilizes goods or services.

Now that you know about customers, you must be wondering “who is a consumer?” Consumers are those customers who buy goods and services for their own use. Thus, all end users of a particular product are its consumers. For example, Raju heads to the nearest store to buy a carton of eggs for himself. In this scenario, he is both a customer and a consumer.

Every person who participates in the economy is a consumer of the product. When a person buys groceries for their family from a grocery shop, for example, they become a customer because they are only acquiring commodities. However, when they feed the groceries to other family members, they become the consumer.

 

Types of Consumers

Consumers are important in a variety of ways, as shown below:

• The Extrovert Type: People who fall into this category are those who have a thing for branded goods. They will almost certainly continue with them and attempt to become loyal. They have a good probability of becoming brand supporters if they are presented with high-quality items and services. These people seek unique brands for purchase and can become loyal customers for that brand if they find quality products and services.

• The Inferior Goods Type: These consumers generally suffer from low income, which forces them to seek inexpensive products for consumption. As a result, people are obligated to purchase only those items that are necessary for their existence.

• The Commercial Type: This group of people buy products and goods in bulk, irrespective of their actual needs or requirements. This group of customers will buy goods and products in large quantities, regardless of their actual needs. This could be utilized for commercial purposes or not.

• The Discrete Type: As the name implies, these customers prefer to shop discreetly. Simply said, they will consider spending a significant amount of money on only a few specialized products, such as cosmetics, jewelry, or clothing. And I’m going to try to avoid thrifting in the other categories. These consumers have a unique buying habit, generally spending a considerable sum of money on electronic products and apparel.

True or False Section

Q. All Consumers are Customers, but not all Customers are Consumers. Is this statement true or false?

A. False

A person needs to buy products and goods to qualify as a customer. However, a consumer may not necessarily be the buyer of the product. For instance, if goods are gifted to an individual, he/she is still the consumer but not the buyer in this instance.

Similarly, customers who purchase products to resell cannot be categorized as consumers of the said item. Thus, not all customers are consumers.

Customer vs Consumer

When trying to gauge the difference between consumer and customer, refer to the following table for help.

 

Do it yourself-

If X buys rice to sell at his retail outlet and Y buys rice for his family, identify whether X and Y are consumers or customers.

The distinction between a consumer and a customer is a key concept for all commerce students. If you still have doubts regarding consumer vs customer, you can sign-up for ’s live online classes for a more nuanced understanding. Conducted by subject experts, these classes can assist students in appreciating and learning the finer elements of class 11 and 12 commerce.

Management is the process from planning, organising to the final action and fruition of any activity. In trade and commerce, Management is a requirement to be fulfilled with sensitivity and sensibility. It is not an overstatement to say that Management can make or break a business. It is therefore very important for students to learn from the basics to the essence of this game-changer, Management.

In this article, students can find the definition of Operational management and Production management and the difference between them.

Production management and operation management primarily focus on managing and using the resources of an organisation to maximise its capabilities. Production management stands for managing activities that are related to production. Whereas, operation management takes a step further and manages the administrations and business operations related to manufacturing and other activities.

Production management is a subset of operation management. However, before proceeding to the difference between production management and operation management, a detailed and separate understanding of these two concepts is necessary.

Production Management

Production management means applying the principles of management to build an effective outline for production. It involves various tasks like planning, supervising, scheduling, and enforcing adequate regulation to maximise output. In a nutshell, it is an efficient use of an organisation’s resources to turn raw materials into products. 

Furthermore, production management includes making a decision related to raw materials, quality and quantity, design of the product, packaging, and pricing. A production manager is a person who is in charge of making these decisions and ensuring that the product matches the required quality standards. 

This management technique plays an integral part in the success of a business. It aids a company to maximise its production without compromising the quality of the final product. Some critical functions of production management are –

1. It has total control over production; the production manager draws up the basic plan for this purpose. 

2. Production management enforces scheduling to manage production efficiently.

3. It ensures that a company keeps on producing quality products at a minimal cost.

4. Last but not least, it takes care of the health of machinery involved by scheduling regular maintenance and repairs.

Operations Management

Operations management applies the principles of management to manage the everyday activities of a company. Therefore, it guarantees the smooth and effective running of an organisation. It involves planning, designing and supervising production as well as other non-production activities.

Additionally, the primary objective of operations management is to ensure the optimal use of a company’s resources and decrease wastage. Moreover, it seeks to deliver the right product to customers by involving every department of a company to work in harmony.

Furthermore, operations management is vital for a business to improve its overall efficiency as well as deliver quality products. Here are some essential functions of operations management –

1. It develops a strategy that allows a company to maximise its resources and increase its foothold in the market in which it is operating.

2. An effective management strategy here can improve a company’s financial standing.

3. It helps companies to develop products as per the market requirements and current trends.

4. Operation management also aids in developing a future outline of the company. It takes into consideration changes in the market and customer behaviour to provide this forecast.

Now that you know what production and operations management is, here is a comparative study that outlines their differences.

Primary Difference between Production Management and Operation Management

Here are the primary differences between these two vital factors behind the successful running of a company –

Definition

Production management is part of operations management. However, when you define production and operation management, you can see that they are two very different concepts indicating two different purposes. Production management primarily deals with factors associated with the production of goods and services.

On the other hand, operations management comprises managing production as well as the administration of a business. It ensures a smooth production and delivery system of products at minimum cost without compromising on quality.

Scope of Operation

Scope of operation is a significant point of difference between production and operation management. Production management’s operational scope is limited to production. With its help, a production manager creates a compelling production strategy in an attempt to maximise a company’s potential.

Contrarily, the scope for operation management is much broader as it deals with every aspect of a company. An operations manager is responsible for formulating a strategy that will ensure the proper use of every company resource. Moreover, he/she has to look after non-production areas like product design, human resources, inventory, logistics, waste management, etc.

Objective

Objectives of production and operation management are crucial to their difference. Production management aims to provide the best quality product at minimal cost and on time. In contrast, the objective of operations management is to ensure the best use of company resources.

Where is It Prevalent?

Production management is found in companies that manage a production unit. Whereas, operations management is found in every business, whether it has a production unit or not.

There are several differences between these two concepts, as mentioned above. However, the importance of production and operation management is unquestionable for a business to attain success. 

While production management takes care of the entire production unit and ensures its efficient performance. Operations management, at the same time, manages the other non-production factors also. 

It ensures that the company delivers the best product at the best prices. Therefore, for a company to become successful in a highly competitive market, these two aspects have to work for hand in hand and effortlessly.

The difference between production management and operation management is a vital topic for every commerce student. Furthermore, students who want to learn more on other topics of commerce can visit the official website of .

How does help the Students to learn About Production Management and Operational Management and Other Relevant Topics on Management in Commerce? 

is an online learning platform that provides free access to quality study material and books to download in PDF format for both Hindi medium students and English medium students.

1. Students can find a variety of all the necessary articles at strictly dedicated to the study of management in regard with Business studies for the students like Levels of Management, Revision notes on Management, The Introduction to Levels and Functions of Management, Recent trends in Management and Flow management in Supply chain.

2. Students can also find free learning material on the topic at the NCERT Solutions, Reference Solutions, Topic-wise Explanations, Revision notes, Important Questions, CBSE Sample question papers and Previous Year’s question papers solved by the experienced and dedicated teachers from prestigious institutions like IITs and other top tier colleges at . 

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The resume of a person is one or two pages written up that provides a professional and personal description of the person. Such profile-based representation is useful for applying for any job. In general, a resume contains a person’s academic qualification, work experience, achievements, personal details, etc. An attractive resume helps in securing good jobs. These are considered to be the source of a good first impression. The methods of making a good, eye-catching resume are discussed below. Also, the different formats of writing a resume are discussed here. 

Definition and Meaning of Resume

A resume is also called curriculum vitae, or CV. A general resume is a brief representation of yourself, depicting your work experience, educational qualifications, technical skills, soft skills, achievements, personal information like marital status, date of birth, hobbies, etc. Whenever you apply for a job in an organisation, your resume is sent to the HR of that particular organisation for evaluation. Therefore, a resume can also be defined as an attempt by the prospective applicant to exhibit his or her suitability for the job role, to the recruiters. 

There are three different formats of resume- functional, chronological, or a combination of both. The job applicants must choose the right format of a resume to strengthen their application.

In general, a resume is accompanied by a cover letter, where the participants describe why they think that they are the most suitable ones for the job. An attractive resume with an engaging cover letter increases the chances of a successful job application by manifold.   

General Resume Format

In general, a resume contains the following details.

• Personal Details

• Educational Qualification

• Work Experience- with the most recent work experience mentioned at the beginning

• Additional information on various skills

• Reference contact details 

Resume Writing Format

All the points mentioned above should be covered in any resume. The following points will help you to arrange your resume in the right format.

• Contact Information: Any resume must be open with the personal information and contact details of the candidate. It must have the candidate’s name, address, and contact number. Such contact information is the most important consideration in any resume and must come first in the list of information.

• Objective: The candidate must mention his or her objective for submitting the resume for the job role. It can be a job application for an open position. In that case, it is important to mention the details of the job position (including the job number). It can also support the submission of an application for a potential job position in the future. In that case, the objective must mention the prospective job position for which the application has been submitted.

• Academic Qualification: The third part of the resume must focus on the educational qualifications of the applicant. The applicant must start with the highest degree obtained and also the high-school or graduation percentage. They should limit their educational details to the major degrees only. 

• Experience: This section of the resume is one of the most important sections. Candidates who have work experience in the field for which they are applying have the upper hand over those who do not have the desired work experience. The candidate must mention details of his or her experience clearly and concisely. The experiences are generally listed in the resume in chronological order starting with the latest job role.

• Skills: The candidate must mention all the skills that he or she has, that can be applied to the job. It can be some external degree or diploma courses on a particular subject that the candidate has undertaken. The candidate must mention all the knowledge and strength he or she has in a particular field. Such mentions of skills in the resume will increase his competence for the job application.

• Projects and Activities Undertaken: Skills are valued more if the candidate has applied them to any project. If the candidate has undertaken any real-life project, he or she must mention it in the resume. Such project experiences add more brownie points to his or her candidature. Moreover, if the candidate is involved in any activity or any club, he or she must mention that in the resume as well.

• Honours and Achievements: The last section of the resume must portray all the honours and awards that the candidate has secured to date. Preference must be given to all the awards related to the job. The candidate can also mention if he or she has received any notable awards not related to the particular job role.

After going through all these points, you no longer have to wonder about how to write a resume format.

Formats of Resume 

The three most common formats resumes are written are – Chronological format, functional format and combination format. Let us now look at all these formats individually in detail:

• The chronological resume format is the most preferred format of resume and is commonly used as it is easy to understand and has all details in chronological order or reverse chronological order. This format is easy to scan through and skip to relevant information required by the interviewer. This resume is preferred by candidates with a lot of experience as it states their work experience in detail. The reverse chronological order is used so that the most recent work experience is displayed right on top in the work experience section. 

• Functional resume format does not list the work experience of the candidate but rather displays the skills acquired through work experience. It also puts forth the candidate’s eligibility and highlights the relevance of experience and the reason the candidate is suitable for the job. A functional resume is not suitable for a Fresher candidate or a candidate with less experience. This format is a great choice for any candidate that would like to avoid the chronological resume format due to a gap in the work history. 

• The combination resume format does not focus on the chronological or reverse chronological order of the resume displaying work experience. It does not even focus on the strengths and skills of the candidate as per the functional resume format. A combination resume format displays the work experience as well as the skills of the candidate and ensures there is no limelight drawn to either. 

Essential Elements of a Resume

There are a few key points to be considered while designing a resume. These key points can be used to format existing resumes as well and they would give the candidate an edge over the candidates by inculcating these elements listed below: 

The heading of a resume has to be covered at the topmost section of the resume and it should have clear and precise details like your name and contact details. Ensure to use a font that is clear and big enough to draw attention to this information. Also, mention the job title below your name so it gives HR (Human Resources) a fair idea of the role you are applying for. A particular organisation could have multiple job opportunities. It is important to specify the job position you are applying for. The contact details would have information like your contact number, email address and correspondence address. 

The summary on your resume needs to be present, it is a short paragraph highlighting your skills and expertise. Draw the HR’s attention to your achievements. The summary needs to be of about five lines and try not to write a summary longer than that. Specify your career objective in this paragraph, you can also use “Career Objective” as the title to this summary. Pick your career objective wisely to ensure it is in connection to the job description that you must have received from the employer. 

Professional experience is a mandatory section as it ensures the employer you have the valid experience for this job opportunity. Mention the name of your former employee along with the employment start and end date. Do not forget to put in a few lines your job role and responsibilities. If you are a fresher you can omit this section. 

Education qualification has to be mentioned on the resume even though you have a lot of professional experience. In the case of freshers, this becomes a crucial part as you are hired based only on your qualification. Make sure you highlight your percentage or GPA (Grade Point Average) in this section. 

Skills are the next important element on your resume post the professional experience and educational qualification. This section highlights your strengths be it hard skills like technical proficiency or soft skills like communication or leadership skills. A skilful employee is always desired by employers. Ensure to list the skills based on the job description displaying why you are the right candidate for this position. 

Achievements, be it your educational or professional achievements or awards or any skills that you may have developed through different courses and were awarded a certificate. 

A summary of a piece of writing or a paragraph is known as a precis. A precis should contain all the essential information and points present in the paragraph. It should also retain the author’s mood and tone, as has been used in the passage. Since precise writing is short, hence try to avoid long sentences and do not spin around the same content. Therefore, to follow proper diction and avoid unnecessary flaws. One needs to abide by some strict precis writing rules. Before checking out the rules, let us take a good look at the rules of precis writing. 

How to Write Precis?

The first thing to be kept in mind is that the exact idea of the passage needs to be delivered without any ambiguousness. Secondly, all the essential points of the passage should be retained in the precis. Lastly, you need to remember that the writing style should be simple with error-free language and flawless delivery. It should be concise and clear. 

 

Below We Have Listed Some Basic Rules Which One Should Follow While Writing a Precis

• Read the passage twice or thrice and try to grasp the general idea of the write-up you need to incorporate into your precis writing.

• Try to maintain a word limit and do rough calculations to identify the length of your passage.

• Note down the essential points of the passage and leave out the rest.

• As you note down the points, do not jumble them up, and maintain the writer’s order and tone.

• Choose a relatable heading for your precis writing.

• Always write in the third person and do not use direct speech. Use appropriate past tense to make it an indirect speech.

• Rather than using titles and names, use official designations. Use personal names if official designations are not available at all. Maintain a similar pattern of writing throughout the passage.

• Make a rough draft and remove all the grammatical glitches and language errors from your precis.

• Try to mention the number of words in the precis writing at the end of the precis within the first brackets.

Characteristics of a Good Precis Writer

is the best online learning platform that helps you to be a good precis writer, you can get complete guidance from the expert team of where the professional teachers will help you to improve your skills and then you can master precis writing. To be a good precis writer, you’ll need the following soft talents.

• He or she should be able to comprehend and judge the chapter thoroughly.

• He or she must be able to comprehend. The passage’s true facts are swiftly revealed.

• He or she must have a large vocabulary and understand its meanings.

• He or she should be aware of the appropriate use of any word.

• At the expense of brevity, he/she should avoid telegraphic language.

Principles of Precis Writing

Below we have mentioned the guidelines on the process of writing a precis with the strict do’s and don’ts mentioned clearly.

 

Precis Writing Do’s

• Start with the main idea itself, for the readers to quickly grasp the plot of the precis.

• Remember that the reader will know what your Precis should contain, hence write in the original flow of the writer. The message of Precis writing should be clear.

• To incorporate all the essential points, create a proper environment, and try to include facts, methods, and portions from the original passage.

• Identify all the unimportant information in the passage and remove them from your precis.

• It is essential to mention the purpose of writing the precis.

• Retain the keywords and keep a check on the word count.

• Any historical fact should be mentioned in the past tense. 

 

Precis Writing Don’ts

• Refrain from writing your own opinions, criticism, and remarks about the passage in the precis.

• Never insert any facts taken from the internet. Use only facts given in the passage.

• Never ask questions in a precis. In case it is imperative, put it in the form of a sentence.

• Use full forms and do not use abbreviations or short forms.

• Do not spin around the same content, and the writing flow should not be jerky. It gives out the impression that you are not confident with your content.

• Ensure the precis is not too long as it is a summary, and it should be short and crisp.

Solved Examples

1. What Can Be the Maximum Length of a Precis?

Ans: Ideally, a precis is the summary of a passage. Hence, it should be within 100 to 200 words or rather one-fifth or one-sixth of the length of the original passage.

 

2. What Writing Style Needs to Be Maintained While Writing a Precis?

Ans: The writing style should be formal, with no grammatical errors. It should be to the point. The diction should be clear and not jerky.

 

Fun Facts

• A precis retains the original writer’s thoughts but should be written in your own words.

• A precis is coherent, and that’s the reason why it logically connects with the reader.

• Precis comes from the French word précis, which means a text or abstract, and precis writing in English means writing a summary of a passage.

• Precis should never contain the personal information of the writer. There should be no criticism or remark regarding the original passage in the precis.

In the study of Economics, elasticity is a vital concept. With elasticity, a commodity’s changing effect and accordingly its impact on related aspects can be understood. The students must be familiar with it, they are required to grasp the learning right from the root level in order to develop an expert understanding of this subject matter.

Well, so what do you mean by elasticity? What is the use of elasticity? All will be discussed here broadly. Our discussion will be primarily based on the Elasticity of Demand. In this case, we will know about the elasticity of demand, the demand elasticity formula, and other important facets. 

 

What is Elasticity?

Elasticity can be defined as a measure of variable sensitivity to the change in another variable. This sensitivity is the change in price, which is related to change in other factors. From a business and economic point of view, it is a measure of how sensitive an economic factor is to another. 

For example, changes in the prices of supply or demand, or changes in demand to changes in income. Examples of elastic goods are clothing and electronics; inelastic goods include items like prescribed drugs, food. It is used to measure the change in quantity demanded of goods or services when compared to the price movements of those goods and services.

What is Elasticity of Demand?

As per the elasticity of demand definition, the demand contracts or extends with rising or fall in the prices. This quality of demand is called Elasticity of Demand when the change in its virtue and the price changes (low or high). The change sensitiveness may be small or less in the elasticity of demand. 

Let us take an example to have a better understanding of the concept. If we take salt, even a big fall in demand cannot affect the fall of its appreciable extension in its demand. Similarly, if we observe a slight fall in the prices of oranges, there will be a considerable change in its demand. The elasticity of demand may be more or less, but it is always perfectly elastic or inelastic.

 

Types of Elasticity of Demand 

There are four types of elasticity of demand mainly as given in the following.

1) Price Elasticity of Demand 

It is defined as the responsiveness and sensitivity of a particular product along with the changes in its price. It shows the relationship between price and quantity that provides a calculator of the price effect in price quantity of demand. 

The below equation calculates the price changes depending on the number of demands and the revenue received by firms before and after any changes.

[E_p = frac{text{Proportionate change in Quantity Demanded}}{text{Proportionate change in Price}} ]

There are different types of price elasticity of demand i.e., 1) perfectly elastic demand, 2) perfectly inelastic demand, 3) relatively elastic demand, 4) relatively inelastic demand, and 5) unitary elastic demand.

2) Income Elasticity of Demand

Income is one of the factors that influence the demand for a product. The degree of responsiveness of a change in demand for the product of the change in demand for the product due to change in income is known as Income elasticity of demand.

[E_y = frac{text{Percentage Change in Demand for a product}}{text{Percentage change in Income}} ]

More income means more demand vice versa. 

3) Cross Elasticity of Demand 

It is defined as a change in the quantity of demand for one commodity to the change in the quantity of demand for other commodities is called cross elasticity of demand. Usually, this type of demand arises with the involvement of interrelated goods such as substitutes and complementary goods. 

[E_c = frac{text{Proportionate Change in Purchase of Commodity X}}{text{Proportionate Change in Purchase of Commodity Y}} ]

For example, if two commodities are called substitutes, when the price of one commodity falls, the demand for another commodity decreases. If the price of one commodity rises in demand, so does the price of another commodity, such as tea and coffee.

4) Advertising Elasticity of Demand

It is defined as the responsiveness of the change in demand to the change in promotional expense is known as the advertising elasticity of demand. It can be expressed by using below the elasticity of demand formula.

[E_c = frac{text{Proportionate Change in Demand}}{text{Proportionate Change in Advertising Expenditure}} ]

Numerically,

[E_a = frac{Q_2 – Q_1}{frac{Q_2 + Q_1}{A_2 – A_1}} times (A_2 + A_1)]

Where,

[Q_1] = Original Demand

[Q_2] = New Demand

[A_1] = Original Advertisement Outlay

[A_2] = New Advertisement Outlay

Solved Example

Q1. What are the two factors that explain the Price Elasticity of Demand? How is it affected by the availability of its close substitutes?

Ans: Many substitutes of goods demand goods that have close substitutes which are relatively elastic, usually when the price of that goods rises the consumers generally shift towards the substitutes. The proportion of income that is spent on the goods in this, then consumer spends a small portion of income mainly on inelastic goods. Therefore, goods on which the consumer spends more will have a lot of elastic demand. Goods that have fewer substitutes like cigarettes will have a completely elastic or inelastic demand.

Did You know?

• There are several factors that influence the law of demand. It tells about the downwards slope of the demand curve mainly it points to when the price falls the demand increases when prices increase the demand decreases. 

• In comparison, other things will remain unchanged. There are mainly five effects named as the substitute effect i.e., Income effect, Utility maximizing behavior, a large number of consumers, and varied uses of products. 

• For example, if the price of coal is increased, then the demand for the industries which depend on coal will increase and the demand for household purposes will decrease.