Team members

Tanvi Pawaskar Anuj Chitale Mugdha Kulkarni Puja Patil Neha Nalawade P38 P46 P49 P56 P59

Elasticity of Demand measures the degree of responsiveness of the quantity demanded of a commodity to a given change in any of the determinants of demand.

Short Run V/s Long Run

Short Run = Less Elastic e.g.. All basic necessity goods like food,medicine,clothes etc. Long Run = Highly Elastic E.g.. All Luxury goods like car, laptop,jewellery etc.

Petroleum Industry
One of the Luxurious Necessity Contributes 15 % in the total GDP Steep Prices of petrol Balance Of Payment Problem

Energy Crisis
An Energy Crisis is any great shortfall in the supply or rise in the price of energy to an economy. It usually refers to the shortage of oil, electricity or other natural resources

Oil Shock of 1973 and 1979 & Consumer behavior

Sudden fall in supply of petrol. Demand went up . Government increased prices by 25% to 30% in order to control the demand. Demand decreased by only 5 to 6 %. Preference to fuel efficient Vehicles. (Eg: Maruti 800)

Question 1

Why do you think the absolute value of demand elasticity is less in the short run than in the long run?

Solution
Short Run = ep < 1 Eg. House rent = 0.75 Clothing =0.68 Long Run = ep > 1 Eg. House rent =1.82 Clothing =1.22

Question 2
Do you think jewellery as a commodity can also be categorized in the same group as the others in the given table? In other words, will it also exhibit change in the demand elasticity between the short run and the long run? Explain why?

Solution
Jewellery is a luxury commodity. Highly Elastic or sensitive to slight price change. Eg. As price of gold rises by 1% , the quantity demanded falls by 2.6% Ep = 2.6

Question 3
Look around yourself and try to find other similar goods or services where the value of elasticity changes with the time horizon? By what extent does it change?

Solution
Goods + Services Short run Demand Elasticity Movies 0.87 Tires and Tubes 0.86 Housing Foreign Travel 0.30 0.14 Long run Demand Elasticity 3.67 1.19 1.88 1.77

Question 4
The change in the value of demand elasticity between short and long run is much smaller in case of food than in clothing, what does this reflect about the consumer behaviour.

Solution

FOOD

Short Run
Price Initial Changed 10 11 10% Demand 100 97 3% 0.30 Price 10 11 30%

Long Run
Demand 100 96 4% 0.40

CLOTHING

Short Run
Price Initial Changed 10 11 10% Demand 100 93 7% 0.70 Price 10 11 30%

Long Run
Demand 100 88 12% 1.20

Question 5
What implication does the shift in rent elasticity from 0.75 to 1.82 have for landlord and house owners?

5th Question

Short Run
Price Initial 10 Demand 100 Price 10

Long Run
Demand 100

Changed

11
10%

93
7% 0.70

11
30%

88
12% 1.20

Conclusion
Less flexibility by consumers in short run Even if price of commodity increases consumer buy it - by habit - by need High flexibility by consumers in long run Choice of alternatives making demand highly elastic