2. The points that we will be
discussing
 The main points that we will be discussing through out
our presentation are :-
1. The 4 different elasticity's – PED, PES, XED AND
YED with examples.
2. Determinants of PED and their effects on PED.
3. Different types of goods and their relationship with
elasticity of demand.

3. The points that we will be
discussing
4. Roles played by different elasticity's in the decision
making of the firms.
5. Role of different elasticity’s in the decisions made by
the government regarding taxes, subsidy’s and price
controls.
6. And finally we will explain the reason why the PED of
primary commodities is relatively low and why the PED
for manufactured products is relatively high.

4. The 4 different elasticity’s
1. Price elasticity of demand (PED) –
A measure of the responsiveness of the demand for a
product to changes in its own price.
Formula - % Change in quantity demanded/ % Change in
price
Now lets consider a good and we can calculate its price
elasticity of demand

5. Example
The price of Volkswagen car rises by 15 %, and at the
same time demand falls by 5 %.
Now % Change in quantity demanded/ % Change in
price = -20%/15% = 1.33
Therefore the coefficient of PED is 1.33
 Price elasticity is negative because price and quantity
demanded usually vary inversely with each other. This
is so common that the sign is ignored.

6. PED
 Therefore since PED > , the good has and elastic
demand which means that any change in price has a
relatively large change on demand.
 This implies a demand curve that is relatively flat.

7. Cross Elasticity of
demand (XED)
 The cross elasticity is a measure of the
responsiveness of the demand for one product to
changes in the price of another product.
 Its formula - XED = % change in quantity demanded
of good X / % change in price of good Y
 Now lets again investigate with the example of a
Volkswagen car.
 Now the increase in the price of petroleum by 5 %
causes the demand of the car to fall by 7 %

8. XED
XED = % change in quantity demanded of good X / %
change in price of good Y = -7 % / 5% = -1.4
Therefore XED = -1.4
Here the sign plays an important role. Complementary
goods have negative cross price elasticity’s.
Whereas, Substitutes have positive cross price
elasticities.
Now since the absolute of XED is greater than 1 we can
say that the XED of these goods is elastic.