MANGERIAL ECONOMICS

PROJECT

TOPIC:
Elasticity of Demand
SUBMITTED TO:
SUBMITTED BY:

The managerial economics project is made by members of LT

A09. The members are as follows:
1) ABHINAV JAISWAL (JL22PG007)
2) .
3) .
4) .
5) .
6) .

LT A09 has taken Automobile Company HYUNDAI

 ACKNOWLEDGEMENT

We would like to thank JAIPURIA INSTITUTE OF MANAGEMENT,

LUCKNOW for providing us with the opportunity to work on this project.

We are extremely thankful to our Professor – XXXXXXXXXXXXX for his

support and guidance throughout the project.

This project would not have been possible without the contribution and
participation of a group of individuals, who have taken a lot of effort in this
project.

CONTENTS
1) Introduction
2) Creta
a) Price Elasticity
b) Cross Elasticity
c) Advertisement Elasticity
d) Income Elasticity
3) Venue
a) Price Elasticity
b) Cross Elasticity
c) Advertisement Elasticity
d) Income Elasticity
4) Verna
a) Price Elasticity
b) Cross Elasticity
c) Advertisement Elasticity
d) Income Elasticity
5) I20
a) Price Elasticity
b) Cross Elasticity
c) Advertisement Elasticity
d) Income Elasticity
6) Aura
a) Price Elasticity
b) Cross Elasticity
c) Advertisement Elasticity
d) Income Elasticity

Introduction
Elasticity of Demand refers to the responsiveness in quantity demanded due a
change in its factors/determinants.
The law of demand states that an increase in price reduces quantity demanded and
a decrease in price increases quantity demanded. The Law of Demand simply
states the direction of change, but it does not measure the quantum of change. To
measure by how much demand changes due to change in its factor the concept of
elasticity is used.

Elasticity of demand is of 3 types:-

1) Price Elasticity- It is defined as the responsiveness or percentage change in
quantity demanded due to percentage change in the price.

2) Income Elasticity- It is defined as the responsiveness or percentage change

in quantity demanded due to percentage change in income.

3) Cross Elasticity- It is defined as the responsiveness or percentage change in

quantity demanded of a product, say X, due to percentage change in price of
another product, say Y, provided that product X and Y are related.

Degrees of Elasticity
1) Perfectly Elastic- It refers to those goods and services where slightest of
change in price leads to immeasurable/ indeterminant change in quantity
demanded. In this case elasticity is said to be infinite.
2) Perfectly Inelastic- It refers to those goods and services which do not change
with changes in price. Perfectly inelastic demand curve is completely
unresponsive to changes in price. Elasticity in this case is zero.

3) Relatively Elastic/Elastic- It refers to demand of those goods and services

where percentage change in quantity demanded is greater than percentage
change in price. Elasticity in this case is greater than 1.

4) Relatively Inelastic/Inelastic- It refers to those goods and services where

percentage change in demand is less than percentage change in price. Hence
elasticity is less than 1.
5) Unit Elastic- It refers to those good and services where percentage change in
demand is equal to percentage in price. Hence elasticity is equal to zero.

CRETA
 Calculation of various Price Elasticity
To explain the concept of Elasticity I have taken HYUNDAI company from the
Automobile Sector.

This Photo by Unknown Author is licensed under CC BY-SA

Price Elasticity
Year Quantity Demanded Price
(Rs.)
2020 18985 776000
2021 18501 850000

% change in Quantity Demanded= ΔD X 100

D
= 18501-18985 X 100
18985
= -2.55

% change in Price= ΔP X 100

P
= 776000-850000 X 100
850000

= -8.71
ep = % change in Quantity Demanded
 % change in price

= -2.55 = 0.29
-8.71

In this case Price Elasticity of Volkswagen Polo is less than one which means it is
Relatively Inelastic. This shows that proportionate change in Quantity Demanded
is less than proportionate change in Price.

Cross Price Elasticity

Direct Competitor of Hyundai Creata is Kia Seltos .

 This Photo by Unknown Author is licensed under CC BY

Demand Schedule of Creta

Year Quantity Demanded Price
(Rs.)
2020 18985 776000
2021 18501 850000
Demand Schedule of Kia Seltos
Year Quantity Demanded Price(Rs.)
2020 33000 699000
2021 35460 503000

% change in Quantity Demanded of Creta = ΔD X 100

D
= 18501-18985 X 100
18985
= -2.55

% change in Price of Kia Seltos= ΔP X 100

P
= 503000-699000 X 100
699000
= -28.04

exy = % change in Quantity Demanded of Creta

% change in Price of Seltos
= -2.55
-28.04
= 0.09
As per the concept of Cross Price Elasticity if the value is positive the two
products(in this case car) are substitute. If the value is negative then the two
products are complementary.
In this particular case the value of Cross Price Elasticity is positive therefore it can
be concluded that Hyundai Creata and Kia Seltos are substitutes.

Advertisement Elasticity
Year Quantity Demanded Advertisement
Expenditure(In Lakhs)
2020 18985 315
2021 18501 289

% change in Quantity Demanded= ΔD X 100

D
= 18501-18985 X 100
18985
= -2.55

% change in Advertisement Expenditure= ΔA X 100

A
= 289-315 X 100
315
= -8.25
Advertisement Elasticity= % change in Quantity Demanded
% change in advertisement expenditure
= -2.55
-8.25
= 0.31
Since the Advertisement Elasticity is less than 1, it shows that change in
advertising expenditure brings about less than proportionate change in
demand.

Income Elasticity

Year Quantity Demanded Per Capita Income

2018 18985 135050
2019 18501 125883

% change in Quantity Demanded= ΔD X 100

D
= 18501-18985 X 100
18985
= -2.55

% change in Income= Δy X 100

y
= 125883-135050 X 100
135050
= -6.79

ey= % change in Quantity Demanded

% change in Income
= -2.55
-6.79
= 0.37

In this case the Income Elasticity is between 0 and 1 which means it is

inelastic and Creta is a normal good/product.
 ELASTICITY OF DEMAND
Elasticity of demand measures the degree of responsiveness of the
quantity demanded of a commodity in response to change in the
determinants of demand.

There are majorly 4 types of elasticity of demand, which are as

follows: -

1) Price Elasticity
2) Cross Elasticity
3) Advertisement Elasticity
4) Income Elasticity

In this assignment, various types of elasticity of demand as mentioned

above, has been calculated for the automobile industry and focusing
particularly on Hyundai Venue , taking into consideration factors such
as- price of the product, price of the competing product (Kia Sonet ),
advertisement and promotional expenditure and per capita income.

 Hyundai Motor Company, often abbreviated to Hyundai Motors and

commonly known as Hyundai, is a South Korean multinational
automotive manufacturer headquartered in Seoul, South Korea. Hyundai
Motor Company was founded in 1967 It has breathtaking dynamics with
a new age technology like Blue Link. Trendy design, unbelievable
performance, and absolutely distinctive looks make it a SUV with flair.
Experience the next level of technology with Hyundai VENUE.
 PRICE ELASTICITY

Price elasticity of demand measures the sensitivity of quantity demanded

in relation to its price.

The below calculations have been performed, assuming the ex-

showroom price of Hyundai VENUE for the year 2020 and 2021.

Demand Schedule of Vento

Year Quantity Demanded Price
(In Thousands) (Rs.)
2020 4600 999000
2021 3500 1067000

% Change in Quantity Demanded= ΔD X 100

D
= 3500-4600 X 100
4600

= -23.91 %

(While calculating the elasticity of demand, the negative sign is due to

the inverse relationship between quantity demanded and price.
Therefore, we ignore the negative sign while calculating the elasticity of
demand.)

% Change in Price= ΔP X 100

P
= 1067000-999000 X 100
999000

= 6.8 %

ep = % Change in Quantity Demanded

% Change in price

= 23.91 = 3.52
 6.8

Diagramatic Representation of Price Elasticity of Demand

of Hyundai VENUE

P1= 999000
P2= 1067000

Q1= 4600
Q2= 3500
Y

D
P2
Price

P1

Q2 Q1 X
0 Quantity Demanded

The X-axis shows the quantity demanded for Volkswagen Vento and
the Y-axis shows the price of Hyundai VENUE. From the above graph,
we can see that as the price increases from P1 to P2, the quantity
demanded decreases from Q1 to Q2.

From the given scenario Price Elasticity of Hyundai VENUE is more than
one which means it is Relatively Elastic. This also means that
proportionate change in Quantity Demanded (23.91%) is greater than
proportionate change in Price (6.8%). Under relative elasticity, the DD
curve of Vento car is flattened curve towards the X-axis as indicated
in the above graph.

There is an inverse relationship between quantity demanded for

Hyundai VENUE and the price of it.

Also, as the price elasticity of Volkswagen Vento is relatively elastic

(3.52), it means that a slight change in the price of Vento will lead to a
greater change in the quantity demanded of the car venue
 CROSS ELASTICITY
Cross elasticity of demand measures the percentage change in quantity
demanded of a product to percentage change in price of its related
product.
It is assumed that the direct Competitor of Hyundai VENUE is Kia Sonet,
and all the further calculations are performed accordingly.

Demand Schedule of Hyundai VENUE

Year Quantity Demanded Price
(units) (Rs.)

2020 4600 999000

2021 3500 1067000

Demand Schedule of Kia Sonet (Substitute)

Year Quantity Demanded Price
(units) (Rs.)
2020 13700 964000
2021 14660 928000

% Change in Quantity Demanded of Hyundai VENUE = ΔD X 100

D
= 3500-4600 X 100
 4600

= -23.91%

% Change in Price of Kia Sonet = ΔP X 100

P

= 928000-964000 X 100
964000

= -3.73%

Cross Price Elasticity = % Change in Quantity Demanded of Commodity

X
of Demand % Change in the Price of Commodity Y

Symbolically:

eXY = ΔQX * PY
ΔPY QX

Where,
X= Hyundai VENUE
Y= Kia Seltos

eXY = 3500-4600 * 964000

928000-964000 4600

= 6.41
Diagramatic Representation of Cross Elasticity of Demand
of Hyundai VENUE

P1 = 964000
Y P2 = 928000
 
P r ic e o f V e r n a

Q1 = 4600
Q2 = 3500
D
P1

P2

O X
Q2 Q1

Quantity Demanded of Vento

The X-axis shows the quantity demanded for Hyundai VENUE and the
Y-axis shows the price of Kia Sonet. From the above graph, we can
see that as the price of Hyundai Verna (substitute commodity)
decreases from P1 to P2, the quantity demanded for Hyundai VENUE
(given commodity) also decreases from Q1 to Q2, as the consumers
shift towards the substitute commodity.

From the given scenario Cross Elasticity of Hyundai VENUE is more than
one which means it is Relatively Elastic. This also means that
proportionate change in Quantity Demanded of Hyundai VENUE (23.91%)
is greater than proportionate change in Price of its substitute product
i.e. Hyundai Verna (3.73%). Under relative elasticity, the DD curve of
Vento car is an upward sloping curve from left to right as indicated in
the above graph.

Also, as the cross elasticity of Hyundai VENUE is relatively elastic (6.41),

it means that a slight change in the price of Kia Seltos will lead to a
greater change in the quantity demanded of the Hyundai VENUE
 ADVERTISEMENT ELASTICITY

Advertisement Elasticity of Demand refers to the proportionate change in

demand of a commodity due to proportionate change in advertising and
promotional expenses.

Demand Schedule of Hyundai VENUE

Year Quantity Demanded Advertisement
(units) Expenditure (in
Lakhs)
2019 4600 285
2020 3500 246

% Change in Advertisement Expenditure= ΔA X 100

A

= 246-285 X 100
285

= -13.68 %

% Change in Quantity Demanded= ΔD X 100

D
= 3500-4600 X 100
4600

= -23.91 %

Advertisement Elasticity = % Change in Quantity Demanded

of Demand % Change in Advertisement expenditure

Advertisement elasticity = -23.91

-13.68
 = 1.74

Diagramatic Representation of Advertisement Elasticity of

Demand of Hyundai VENUE

A1 = 285
Y A2 = 246
 
Advertisement Expenditure Q1 = 4600
Q2 = 3500
D
A1

A2

X
O Q2 Q1
Qunatity Demanded

The X-axis shows the quantity demanded for Volkswagen Vento and
the Y-axis shows the advertisement expenditure incurred by the
company. From the above graph, we can see that as the advertisement
expenditure decreases from A1 to A2, the quantity demanded also
decreases from Q1 to Q2.

From the given scenario Advertisement Elasticity of Hyundai VENUE is

more than one which means it is Relatively Elastic. This also means
that proportionate change in Quantity Demanded (23.91%) is greater
than proportionate change in Advertisement expenditure (13.68%).
Under relative elasticity, the DD curve of Vento car is an upward
sloping curve from left to right as indicated in the above graph.

The upward sloping curve indicates that there is a direct relationship

between the advertisement expenditure incurred by the company and
the quantity demanded of Hyundai VENUE Also, as the advertisement
elasticity of Volkswagen Vento is relatively elastic (1.74), it means that a
slight change in the advertisement expenditure will lead to a greater
change in the quantity demanded of the car Hyundai VENUE
 INCOME ELASTICITY

Income elasticity of demand measures the responsiveness of quantity

demanded of a commodity in response to change in income.

Demand Schedule of Vento

Year Quantity Demanded Per Capita Income
(units) (Rs.)

2020 4600 135050

2021 3500 128829

% Change in Income = ΔI X 100

I

= 128829-135050 X 100
135050

= -4.6 %

% Change in Quantity Demanded= ΔD X 100

D
= 3500-4600 X 100
4600

= -23.91 %

Income Elasticity = % Change in Quantity Demanded

of Demand % Change in Income

Income elasticity = -23.91

-4.6

= 5.19
 Diagramatic Representation of Income Elasticity of
Demand of Hyundai VENUE

I1 = 135050
Y I2 = 128829
 
Q1 = 4600
Q2 = 3500
Per Capita Income

D
I1

I2
D

X
O Q2 Q1
Quantity Demanded

The X-axis shows the quantity demanded for Volkswagen Vento and
the Y-axis shows the Per capita income. From the above graph, we
can see that as the per capita income decreases from P 1 to P2, the
quantity demanded also decreases from Q1 to Q2. The decrease in per
capita income from 2020 to 2021 was due to the outbreak of
Coronavirus pandemic across the globe, which had put many people
out of work especially in India.

From the given scenario Income Elasticity of Hyundai VENUE is more

than one which means it is Relatively Elastic. This also means that
proportionate change in Quantity Demanded (23.91%) is greater than
proportionate change in Per Capita Income (5.19%). Under relative
elasticity, the DD curve of Hyundai VENUE is an upward sloping curve
from left to right as indicated in the above graph.

The upward sloping curve indicates that there is a direct relationship

between the income of consumers and the demand of Hyundai VENUE
Also, as the income elasticity of Hyundai VENUE is relatively elastic
(5.19), it means that a slight change in the per capita income will lead
to a greater change in the quantity demanded of the car Vento.
 HYUNDAI VERNA

I have taken HYUNDAI VERNA to explain the elasticity concept.

PRICE ELASTICITY.
YEAR QUANTITY PRICE (RS)
DEMANDED
2020 1250 2800000
2021 972 2880000

% change in quantity demanded= ΔD X 100

D
= 972-1250 X 100
1250
= - 22.24%
% Change in price= ΔP X 100
P
= 2880000-2800000 X 100
2800000
= 2.85%
Price elasticity = % change in quantity demanded
% change in price
22.4 = 7.85
2.85

In the above case of Price elasticity of HYUNDAI VERNA which is

more than one so it means RELATIVELY ELASTIC
Proportionate change in quantity demanded is greater than
proportionate change in price.
CROSS PRICE ELASTICITY
Here I have taken a direct substitute of HYUNDAI VERNA that is
HONDA CITY

This is the data for HYUNDAI VERNA

YEAR QUANTITY PRICE
DEMANDED
2020 1250 2800000
2021 972 2880000
This is the data for HONDA CITY
YEAR QUANTITY PRICE (Rs.)
DEMANDED
2020 2210 1594000
2021 7230 1478000
% Change in quantity demanded of HYUNDAI VERNA =ΔD X100
D
= 972-1250 X 100
1250
= - 22.24%

% Change in price of the substitute HONDA CITY =

ΔP X 100
P
= 1478000-1594000 X 100
1594000

= -7.27 %
Cross price elasticity = % change in quantity demanded (commodity X)
% Change in price (commodity Y)

X = HYUNDAI VERNA
Y= HONDA CITY
= 22.24
7.27
= 3.06
Cross price elasticity is relatively elastic. This means that the
proportionate change in demand is greater than proportionate change in
the price.

Advertisement Elasticity:
YEAR QUANTITY Advertisement
DEMANDED Expenditure
2020 1250 324
2021 972 296

Advertisement Elasticity = %change in quantity demanded

% change in the advertisement exp

% change in the quantity demenaded = ΔD ×100

D
= 972-1250 × 100
1250
= -22.24

% change in the advertisement expenditure = ΔA × 100

A
= 296-324 × 100
324
= -8.64
Advertisement Elasticity = %change in quantity demanded
% change in the advertisement exp

= 22.24
8.64

= 2.57

INCOME ELASTICITY:

YEAR QUANTITY Per Capita Income

DEMANDED (in Rs)
2020 1250 135050
2021 972 128829

% change in income = ΔI × 100

I
= 128829-135050 ×100
135050

= -4.6 %

% change in quantity demanded = ΔD ×100

D
= 972- 1250 ×100
1250
= -22.4%
Income Elasticity = %change in quantity demanded
% change in the income
= 4.6
22.4
= 0.205
Income elasticity is relatively elastic. This means that the percentage
change in quantity demanded is relatively greater than the percentage
change in income.
 Hyundai i20

PRICE ELASTICITY:
YEAR QUANTITY PRICE (RS)
DEMANDED
2020 9202 19,99,000
2021 8201 20,68,000

I have taken HUYANDAI i20

% change in quantity demanded= ΔD X 100

D
= 9202-8201 X 100
8201
= 10.87%

% Change in price = ΔP X 100

P
= 20,68,000-19,99,000X 100
19,99,000
= 3.45%

Price elasticity = % change in quantity demanded

% change in price
= 10.87
3.45
= 3.15
 In the above case of Price elasticity of i20
which is more than one so it means RELATIVELY
ELASTIC
Proportionate change in quantity demanded is greater
than proportionate change in price.

CROSS PRICE ELASTICITY:

Here I have taken a direct substitute of Hyundai
i20 is Swift Dzire

YEAR QUANTITY PRICE

DEMANDED
2020 9202 6,91,000
2021 8201 7,75,000
This is the data for i20.
YEAR QUANTITY PRICE (Rs.)
DEMANDED
2020 3,225 16,79,450
2021 7113 17,97,800
This is the data for Swift Dzire
% Change in quantity demanded of i20 = ΔD X100
D
= 8201-9202 X 100
9202
= -10.87%

% Change in price of the substitute i20 = ΔP X 100

P
= 1679450-1797800 X 100
1797800

= -6.58 %

Cross price elasticity = % change in quantity demanded (commodity X)

% Change in price (commodity Y)

X = i20

Y= Swift Dzire
= 10.87
6.58
= 1.65
 Advertisement Elasticity:
YEAR QUANTITY Advertisement
DEMANDED Expenditure
2020 9202 324
2021 8201 296

Advertisement Elasticity = %change in quantity demanded

% change in the advertisement exp

% change in the quantity demenaded = ΔD×100

D
= 8201-9202× 100
9202
= -10.87

% change in the advertisement expenditure = ΔA× 100

A
= 296-324× 100
324
= -8.64
Advertisement Elasticity = %change in quantity demanded
% change in the advertisement exp

= 10.87
8.64
= 1.25

INCOME ELASTICITY:

YEAR QUANTITY Per Capita

DEMANDED Income
(in Rs)
2020 9202 135050
2021 8201 128829

% change in income = ΔI × 100

I
= 128829-135050 ×100
135050

= -4.6 %

% change in quantity demanded = ΔD ×100

D
= 8201- 9202 ×100
9202
= -10.87%

Income Elasticity = %change in quantity demanded

% change in the income
= 4.6
10.87

= 0.423
 Hyundai Aura

Passenger vehicle Hyundai India has reported total domestic

market sales of 133,732 units in July 2021. This constitutes a year-
on-year increase of 37% on July 2020’s 97,768 units, a month which
saw pandemic-induced loss of sales. In July 2020, Volkswagen had
sold 96,478 units in July 2020 (-36%) and 152,427 units in July 2019.

Price elasticity of AURA

Demand of the AURA

Number Hyundai Aug-20(Q1) Aug-21(Q2) Diff.

Aura
1 987 1200 213

Price of the Hyundai Aura

Number Hyundai Aura 2020(p1) 2021(p2)
1 21,35,000 21,50,000

Q 2−Q 1
%change ∈quantity= ∗100
Q1

1200−987
∗100=21.58
987

% Change in quantity of Hyundai Aura is 21.58

P 2−P1
% Change in price= ∗100
P1

2150000−2135000
∗100=0.70
2135000

%change∈quantity
Price Elasticity of Hyundai Aura =% Change∈ price

21.58
=30.82
0.70

Price Elasticity of Hyundai Aura =30.82

P2

P1

PRICE

Q1 Q2
QUANTITY DEMANDED
Cross Elasticity

  In economics, the cross elasticity of demand refers to how sensitive the

demand for a product is to changes in the price of another product.

The major competitor of Hyundai Aura is Honda amaze

DEMAND for Hyundai Aura

Year 2020 2021

PRICE (in lakhs) 21.35 21.50
Quantity demanded 978(q1) 1200(q2)
(in units)

Demand schedule for Honda amaze

Year 2019 2020

PRICE (in lakhs) 19.8 21.9
Quantity demanded 3230(Q1) 5200(Q2)
(in units)
Where , X= Hyundai Aura & Y= Honda amaze

Q2−Q1
∆Qd = ∗100
Q1

1970
= 3230 ∗100=60.99

Percentage change in price of y

P2−P1
∆P= ∗100
P1
68198−59488
= ∗¿100=53.64
59488

cross elasticity of Demand (Cd)

%▲Qd
=

%▲p

60.99
= 53.64 =1.13

Here , Cd> 0 Therefore the two products are substitute goods which

indicates Positive Cross Price Elasticity

Advertisement Elasticity of Demand Of Hyundai Aura

YEAR 2019 2020
Advertisement Expenditure (in 48 65
crore)
Quantity Demanded (in unit) 63274 86741

Advertisement elasticity of demand(eA) =

Percentage Change in quantity demanded

—————————————————————–
Percentage Change in advertisement cost

 = (∆Qd /∆A) X (Qd/A)

Where,

∆Q =Q1 – Q
∆A = A1 – A

Q is the original quantity demanded

Q1 is the new quantity demanded
A is the original advertisement cost
A1 is the new advertisement cost

Percentage change in Quantity

demanded ,
Q2−Q1
∆Qd = ∗100
Q1
86741−63274
= ∗100

63274

= 37
 Percentage change in Advertisement cost ,
A2−A1
∆A= ∗100
A1
65-48
= ∗100
48

= 35.4

Advertisement elasticity of demand(eA) = 37/35.4 = 1.04

Here, AED > 1, it is relatively elastic demand.

It means that demand is more sensitive to the advertising expenditure

and proportionately giving more than proportionate increase in demand.

INCOME ELASTICITY OF DEMAND.

YEAR 2020 2021

Per Capita Income 120000 130000
Quantity Demanded 978 1200

ΔI
%Change in income = I x 100

10000
= 120000 x 100

= 8.33%

ΔD
% Change in Quantity = D X 100
 222
= 978 X100

= 22.7%

% Change∈Quantity
Income elasticity = %Change∈income

= 22.7/8.33

= 2.72

CONCLUSION
The project on elasticity of demand was very insightful. It helped us to
develop our understanding on how to calculate various types of
elasticities like price elasticity, cross elasticity, advertisement elasticity
and income elasticity using actual data of the company.

This project gave us the opportunity to understand the practical

application of the elasticities of demand. By working on this project,
we were able to understand the importance of these elasticities in real
life business situations and how various factors affect the demand for
a particular commodity.