 Welcome to the session of demand and the market analysis. These are the learning outcomes of the session. Before proceeding let me ask you one question. What is the market equilibrium? You may pause the video, think about this question, write down your answer in your notebook and in order to see the answer you can resume the video. The market equilibrium is a state where the market supply and the demand balances each other and as a result the price will become stable. What is the elasticity? The major concept of the elasticity in the market, the elasticity is a major of the responsiveness. It is a ratio of the percentage change in the one variable to the percentage change in another variable. A good or the service is considered to be elastic if a slight change in the price leads to a sharp change in the quantity demanded or quantity supplied. Usually, these kinds of products are readily available in the market and the person may not necessarily need them on his or her daily life. For an example, air-conditional, televisions, movie tickets, etc. On other hand, the inelastic good or service is one in which the change in the price will witness only the modest change in the quantity which is demanded or supplied. These goods tend to be the things that are more important for the consumer for the daily life. For an example, gasoline, rice, potato, onion, salt, medicines, etc. These are the examples of the inelastic goods. The law of the demand tells us that the consumer will respond to the price decline by buying more numbers of the product or the goods. It does not however tell us about the degree of responsiveness of the consumer for the price change. The contribution of the concept of inelasticity lies in the fact that it not only tells us about the consumer's demand response to the price change but it also tells us about the degree of responsiveness of the consumer for the price change. As shown in the figure, let the DA be the demand for the cheese in Switzerland and let DB be the demand for the cheese in England. At the price of $10, the quantity demanded in both the countries is $60. When the price falls from $10 to $5, the quantity demanded for the cheese will increase in both the countries. However, for the same change in the price from $10 to $5, the change in the quantity demanded increases more in England as compared to Switzerland. In other words, for the same decrease in the price in both the countries, the quantity demanded responds more in England than that of Switzerland. We would describe the above situation by saying that the demand for the cheese is more elastic in England than that of Switzerland. Elasticity then is the first another word for the responsiveness. The elasticity of the demand is important primarily as an indicator for how a total revenue changes when the change in the price induces the change in the quantity along with the demand curve. The total revenue of the firm or the organization can be calculated by the total quantity sold multiplied by the price of that particular product. Naturally, the total revenue will be received by the firm are equal to the total spending by the consumer. So, if the consumer buy the 15 units for the $10 each, the total revenue will be $500. So, what is the price elasticity? So the price elasticity of the demand in the economy measures the change in the quantity demanded or purchase for the product, which is a relation to the price change. It means it measures the relationship between the price change and the quantity demanded. So it is mathematically can be expressed as the price elasticity of the demand is equal to the percentage change in the quantity demanded divided by the percentage change in the price. The price elasticity is used by the economics to understand how the supply or the demand changes when the price changed. For the instant some goods are very inelastic and that is their price does not change very much in a given change in the supply market or the demand. For an example, people need to buy a gasoline to get to work in order to travel around the world. So if the oil prices rises, the people will utilize the same amount of the gasoline they have previously utilized. On other hand, the certain goods are very elastic, their prices move cause a substantial change in the demand or the supply. So here we can look at the how demand side equation is impacted by the fluctuation in the price by considering the price elasticity of the demand, which you can contrast to the with the price elasticity of the supply. If the quantity demanded for the product exhibits a large change in the response to change its price, it is termed as elastic, that is the quantity stretched far from its prior point. If the quantity purchased has a small change in the response to its price, then that particular can be termed as inelastic or the quantity did not stretch much from its prior position. So the more easily the shoppers can substitute one product with the rising prices of the another product, the more price will fall and then that will be called as a more elastic. In other words, in the world where the people equally like the coffee and the tea, if the price of the coffee increases, the people will have no problem in order to switch to the tea. So the demand for the coffee will fall and this is because the coffee and the tea are considered as a substitute product with each other. The income elasticity of the demand is the numerical major of the degree to which the quantity demanded response to the change in the income of the individual. For example, let there be the two goods, clothing and the salt. Let the consumer income is increased by 5%. In the percentage change, that means increase in the quantity demanded would be different for clothing as well as for the salt. It means if he will buy more cloth as compared to the salt. Because for the same percentage increase in the income, the percentage increase in the quantity demanded for the both the product will be different. Thus the income elasticity of the demand allows us to compare the sensitivity of the demand for the various goods for the same change in the income. From the definition of what we can say, so the income elasticity is a percentage change in the quantity demanded divided by the percentage change in the income. The income elasticity of the commodity may be the positive, negative and depending on whether the good is normal or the inferior. A normal good is one where the percentage increase in the income causes the percentage increase in the quantity demanded. Thus for the normal goods, the income and the quantity demanded vary in the proportional to which the income elasticity of the demand will be positive. The income elasticity of the demand will provide us a numerical major of these differences. Whereas the inferior good is one where the percentage increase in the income causes the percentage decrease in the quantity which is demanded. The inferior good we can consider an example of the artificial jewelry, imitation shoes, etc. The income and the quantity demanded vary in inverse due to which the income elasticity will become negative. So, when the EI is equal to 1, the good is said to have the unitary income elasticity. When the EI is greater than 1, the good is said to have the income elasticity. When the EI is negative, the good is said to be the inferior good, cross elasticity. The cross elasticity of the demand is a numerical major of the degree to which the quantity demanded for the good responds to the change in the price of the other commodities. The other commodities of the demand are kept being constant. It means that we are going to compare the two products. The cross elasticity of the demand in the economic concept that measures the responsiveness of the quantity demanded for one good when the price of the another good changes. The cross elasticity of the demand for the substitute good is always positive because the demand for the one good increases when the price for the substitute good increases. Alternatively, the cross elasticity of the demand for the complementary good is negative. Let us consider the two goods X and Y. If the price of Y changes means it increases or decreases, this may have the effect on the quantity which is demanded for the good X. The concept of the cross elasticity thus provides us the numerical measure of the percentage change in the quantity demanded due to the change in the price of the other commodity. It measures the degree to which the quantity demanded is a function of the price of all other commodities. From the definition what we can conclude, so the EC will be equal to the percentage change in the quantity demanded for the good X to the percentage change in the price of the good Y. Let us say that the X and Y are the butter and bread are the complementary products. The EC will be negative, how it will be negative? Now if the price of the bread rises, there would be decrease in the demand or the quantity of the bread and decrease in the quantity demanded for the bread also. Thus for the complementary product, the change in the price of one good causes the quantity demanded for the complement good to move in opposite direction. If there is a percentage increase in the price of the bread, then the denominator term in the formula will become positive. Similarly, if the percentage decrease in the quantity of the butter, the numerator in the formula would become negative and hence EC is negative for the complementary product. Now if suppose that the X and Y are the substitute products say T and the coffee, then EC will be positive. If the price of the coffee rises, then there would be a decrease in the quantity demanded for the coffee and there will be the increase in the quantity demanded for the T as the consumers consume substitute T instead of the coffee. Thus for the substitute, the price change of one good causes the quantity demanded of the substitute to move in the same direction. If there is a percentage increase in the price of the coffee, the denominator in the formula would become positive and similarly if there is a percentage change in the quantity demanded for the T, the numerator in the formula would become positive. Hence the EC would be positive for the substitute. The higher the numerical magnitude of the cross elasticity, the greater the degree of complementary or the substitute in between the two goods. So, thus theoretically the value of cross elasticity will be ranges from minus infinity for the perfect complements to the plus infinity for the perfect substitute. Hence mathematically what we can express the percentage change in the quantity of X divided by the percentage change in the price of the Y. These are the references for the session. Thank you.