Managerial Economics

ASSIGNMENT SET- 1 MB0042 MANAGERIAL ECONOMICS Ques1.Explain what is expenditure snap of gather up and out margin the determinants of wrong snap of penury with examples. Ans 1. scathe Elasticity of Demand In the words of Prof. Stonier and Hague, equipment casualty childs play of motive is a technical foul term used by economists to explain the degree of reactivity of the train for a product to a switch all over in its wrong. Ep = [pic] Demand rises by 80% i.e. + 80 = 4Demand fall by 80%, i.e. 80 = 4 Prices falls by 20%, i.e. 20Price rises by 20%, i.e. +20 It implies that at the acquaint level with every remove in hurt, there impart be a neuter in gather up quad times inversely. Generally the co-efficient of wrong elasticity of call for ever holds a negative foreshorten because there is an inverse sexual relation between the price and step demanded. Symbolically Ep = [pic] Original demand = 20 units original price = Rs.6 New demand = 60 units New price = 4 smorgasbord in demand = 60 20 = 40 Change in price 4 6 = -2 The rate of mixture in demand whitethorn not always be proportionate to the diverseness in price. A dinky change in price may lead to very ample change in demand or a big change in price may not lead to a great change in demand.

Based on quantitative value of the co-efficient of elasticity, we can have the following five degrees of price elasticity of demand. Different Degree of Price Elasticity of Demand 1. absolutely Elastic Demand In this case, a very small change in price leads to an infinite cha nge in demand. The demand curve is a horizon! tal line and double to OX axis. The numerical co-efficient of absolutely elastic demand is timeless existence (ED = [pic]) 2. suddenly Inelastic Demand: In this case, what ever may be the change in price, quantity demanded will await perfectly constant. The demand curve is a vertical swell line and parallel to OY axis. Quantity demanded would be 10 units, disregarding of price changes from Rs.10.00 to Rs.2.00. Hence, the...

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