eco grp- 2 presentation

8/9/2019 Eco Grp- 2 Presentation

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BY:

DURGESH, FARAZ SHAHID, GAURAV, HIMANI

SHARMA, HUMA RAFI, JITENDER


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INTRODUCTION OF CASELET

y India faced two oil shocks in 1973 and 1979 as price of

petrol was hiked up.

y Resulted in two kinds of demand elasticity:-

y Short Run elasticity of demand.

y Long run elasticity of demand.


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Consequences of oil shocksOn the short run basis:

y Consumers started cutting down their vacation trips by

car.

y Started going to office in car pools.

y Started using public transport system.

y Even paid higher prices.

y Average petrol consumption decreased by 5-7%


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On the long run basis

y

People started showing different pattern after severalyears, as they started moving to jobs closer to their

residents.


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MARUTI 800 CASEy Demand was inelastic in the mid 1980s because of its

lower running cost.

y By late 1980s the price elasticity demand for maruti 800fall by more than 20%. The reasons may be:

(1) Indian industry was highly regulated till the mid-1980s

(2) The market structure in most manufacturing sectors was

largely shaped by government policy.(3) Deregulation after 1985 allowed greater scope for

competitive processes.


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ELASTICITY OF DEMANDIt is the measure of the responsiveness in the quantity

demanded of the commodity to a change in its price.

e = % change in dependent variable

%change in independent variable

If substitutes are available then, demand is elastic (Ep>1).

Eg: coke, sugar.

If substitutes are not available then, demand is inelastic(Ep


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SHORT RUN ELASTICITY OF

DEMAND IS LESS ELASTIC THANTHE LONG RUN ELASTICITYy Its difficult to substitute a commodity instantly(short run)

but longer the time period greater can be the ease ofsubstitution (long run).

y It usually takes some time for consumers to learn of the

availability of substitutes and to adjust their purchases to

the price change.y So, In the short run demand is likely to be less elastic

than the long run elasticity.


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EXAMPLEy Introduction of mobile phones in India.yNearly 20 years back, the price elasticity for the same was

much inelastic as they were of very high prices and were

unaffordable for common people.

y Over the period of several years(long run), when other

alternatives came into market with economical prices, the

price elasticity of the demand increases.

y Thus for a given price change and over a period of time,

the quantity demanded response is likely to be much

larger in the long run than in the short run.

y So, the price elasticity of demand is likely to be much

greater in the long run than in the short run.


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CONCLUSIONy The price elasticity of demand is greater when longer is

the time period allowed for consumers to respond to the

change in the commodity price.y If people are used to buying a good or a commodity, then

when the price goes up, they will buy it out of habit.

However, when they realize the price rise is permanent

they will expend energy in looking for alternatives.

eco grp- 2 presentation

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