Demand Continuation 2

Added: 2026-05-21

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[00:01:36]>> Let me get started now. So yesterday I dealt with the deh elasticities of demand. I said elasticity is just this tool that I'm using in order for me to assess how one variable is changing when I shock the other variable or when I change one variable how is the other variable changing and in so doing I talked about the price elasticity I talked about the price elasticity of demand which was the percentage change in quantity demanded divide by percentage change in price. That's what I talked about. But beyond that, I said this price elasticity of demand can be calculated using two methods. There's one method that I was calling the point price elasticity of demand method and with that one I was able to establish saying that this method quite all right to give you a correct answer but it only has a drawback of finding a different answers here moving from point A to point B. So to resolve that problem I then decided to use the midpoint method. with the midpoint method you find the same answer regardless of whether you're moving from point A to point B. So now what I'll talk about is that now you can calculate your value of elasticity like for example there on top I found my my value of elasticity as 1.19 I also further found my value for elasticity of demand there it was -6.667 667 the core purpose of this lecture now I'll talk about how you interpret the elasticities so essentially number one when you can find that sometimes there's this definition first definition or first classification so if you find your elasticity the first thing that you have to do is you have to convert it to absolute terms like in the above case I found an a price elasticity of demand of negative 1.19.

[00:03:48]The first thing I need to do, I need to convert in absolute terms. By converting it to absolute terms, I introduce what is referred to as the modulus. If I introduce the modulus of -1.19, it becomes 1.19.

[00:04:05]So always when you're calculating the price elasticity of demand, you always convert it to absolute terms. after converting it to absolute terms that's the only instance in which you can be able to interpret. So your first interpretation your first possible interpretation is that number one the price elasticity of demand can be elastic. What does it mean when the price elasticity of demand is elastic?

[00:04:33]It means that the price elasticity of demand is greater than zero in absolute terms. No sorry greater than one. If the price elasticity of demand if the price elasticity of demand is greater than one in absolute tense then it means that demand is elastic.

[00:04:56]Intuitively what that means is that if I go back to the formula of price of demand it's percentage change in the quantity demanded divide by percentage change in price. So if this value is greater than one, what does that mean?

[00:05:12]It means that the top part is bigger than the bottom part. Right? So meaning that if I change price by maybe 1% it means that the quantity demand will change more than by more than 1%. That's what it means. So uh as a graph how does that how does it look? It means that the moment your graph is almost the moment your demand function is almost straight like this. So this is straight but the moment the demand cave is almost straight cuz this here the one in in red here is almost like this one. So the moment your demand cave is almost straight like that we say that the demand is elastic together. Alternatively, you can be able to use like for example I can have a price there. That is the price that is the quantity there. Quantity one.

[00:06:13]Hello. Is someone saying something?

[00:06:16]So this is price one. Quantity one. I can further reduce the price to price two. There this is price two. This is quantity two. From there I able to see that the price is only changing by this cap portion. The quantity demand is changing by a larger portion there. So this is what I mean when I say demand is elastic. It means the price elasticity of demand in absolute terms is greater than one.

[00:06:48]Are we together?

[00:06:51]>> Yes. Yes.

[00:06:54]>> Okay.

[00:06:55]>> Yes. Yes. M only one person can say yes.

[00:06:59]Only one person can say yes. The next definition that I'll talk about is that sometimes your price elasticity of demand can be perfectly elastic.

[00:07:13]When your price elasticity of demand your price elasticity of demand can be perfectly elastic. So when your price elasticity of demand is perfectly elastic, how does that look? It looks like this. your demand curve will be horizontal like that. So what does it mean? It means that at a fixed price, so you can see there that price is constant. At a fixed price, I can sell as much as I want. At this fixed price, I can sell one unit. At this fixed price, I can sell 1 million units of this good. So from there I able to see that the price is constant and at this constant price I can sell as much as I want. So intuitively using the formula it means that the price elasticity of demand is percentage change in quantity demanded divide by percentage change in price. Is the price changing there? The price is not changing there. You can see that. So meaning that it's pa the price is constant. So meaning that because the price is constant it will be a percentage change in quantity demanded divide by zero. So you can see the reason the bottom is zero because the price is not changing.

[00:08:33]It's constant at this constant price I can sell as much as I want. So because mathematics says that a number divided by 0 is it's not zero it's infinite. A number divided by 0 is infinite. So meaning that when your price elasticity of demand is equal to infinite in absolute terms we call that as uh demand is perfectly elastic.

[00:09:04]Are we together? Only one person can say yes.

[00:09:08]>> Yes.

[00:09:11]>> Yes.

[00:09:15]instruction you wake up you guys waiting next I'll talk about price sometimes the price elastic or sometimes the demand I can say demand is inelastic what does it mean when demand is inelastic it's sort of like a situation where if I get like for example you can get a duster or a stick if you try to stretch the duster or the stick it won't stretch meaning that it inelastic. So in this case, what does that mean? When demand is inelastic, it means that the price elasticity of demand in absolute terms is less than one.

[00:10:00]If the price elasticity of demand is less than one, so meaning that it is in the 0 something, right? So meaning that it is in the 0 point something. So meaning that if your price elasticity of demand is less than one intuitively the formula for price elasticity of demand is percentage change in quantity demanded divide by percentage change in price. So if this is less than one what does that tell you? It tells you that the bottom part is less than the sorry it tells you that the top part the top part is less than the bottom part. So meaning that the percentage change in quantity demanded is less than percentage change in price. That's what this means right? If the price elasticity of demand is less than one and by using if you use what's this meaning that if if you have a straight line or a demand c your demand c will be like this. So if your demand C is almost straight like this is if your demand curve is almost straight like this we say that demand is perfectly inelastic.

[00:11:12]So I can be able to introduce two points as well. Suppose that my price one is there. This is P1. The quantity will be there. This is Q1. So further I can reduce the price to P2. What will be the quantity? the quantity will be Q2. So from there you can see that the price is changing by a huge amount and quantity is only changing by a small amount. So if you have this situation you say that demand is inastic.

[00:11:47]Is there any question?

[00:11:52]>> No.

[00:11:54]>> Okay. That's when alternatively you also have instances where demand can also be perfectly inelastic.

[00:12:03]Demand can be perfectly inelastic. What does it mean when demand is perfectly inelastic? So for example, we can talk of situation if someone is diabetic. If someone is diabetic and they so if you're diabetic, they will give you a particular amount of insulin you have to inject in your body. So maybe they will tell you okay every day you should be injecting yourself 5 g of insulin.

[00:12:30]Sometimes you know that if you don't inject yourself with insulin you will die. So sometimes the hospital can be able to manipulate you in such a way that they can be increasing the price of this commodity but because there is a required amount of insulin you're supposed to take in your body the the quantity you can buy will be the same.

[00:12:53]So this is an example of this type of demand where your demand c is like this.

[00:12:58]You can have insulin. Insulin you're supposed to take a specific amount of dosage in your body. If they increase the price, you know that if you can't live without insulin, you'll die. Yeah.

[00:13:10]You've got no option but to buy. So such a good there will have a demand cave which is vertical like this. So if your demand is vertical like that, it says we call this as a perfectly inelastic demand. So what does that mean? So you can see there that your quantity now is the one that is fixed. Your price can change there. So in this instance, my price elasticity of demand is percentage change in quantity demanded divide by percentage change in price. From there you can see that the percentage change in quantity demanded is constant. So on top it's 0 divided by percentage change in price. What is 0 divided by a number?

[00:13:58]0 divided by a number is 0. So meaning that when you find that your price elasticity of demand is equals to zero.

[00:14:05]You conclude that the price elastic that demand is perfectly inelastic.

[00:14:14]Are we together?

[00:14:17]Yes, >> that's when there's also Yeah. Yeah. There's also a special type of elasticity. There's also a special type of demand curve. This demand curve. Sometimes you can see there's also a special type of demand curve. From there you can see that this is sort of like a hyperbolic demand c.

[00:14:41]So from there you can see that in this instance if I let me say this was my price. This was price one. This was quantity one. This was this is price two. This is quantity two.

[00:14:58]So you can see that this distance the change in price and the change in quantity are almost the same distance.

[00:15:06]Right? You can see that the change in price and the change in quantity are almost the same distance. So when so there when price elasticity of demand which is percentage change in quantity demanded divide by percentage change in price is equal to one. What does that mean? It means that the percentage change in quantity demanded is equals to the percentage change in price. Right? So meaning that if your price elasticity of demand is equals to one we usually refer to that as unitary elastic demand together of demand is equal to one it we call that unitary elastic demand. Is there any question?

[00:16:01]Huh?

[00:16:06]No.

[00:16:07]>> Is there any question?

[00:16:09]>> No. Repeat.

[00:16:12]>> No. When the when your when your when your price elasticity of demand is equal to one, we call that unitary elastic.

[00:16:23]Unitary elastic. It means that the percentage change in quantity demanded is equals to the percentage change in price.

[00:16:36]So now I'll go to the next se segment.

[00:16:39]So you may be wondering and asking yourself why are we learning these elasticities?

[00:16:46]Why are we learning these elasticities?

[00:16:47]When learning this elasticities, so you find that elasticity is one of the most used concepts in sort of like micro and macro. So one thing you realize is that sometimes you can be an economist at Zesco. If you're an economist at Zesco, you realize that there are certain people that lived in uh you know where Chisa Chisa, there's Chisa and there's Kablonga.

[00:17:19]So there are people that live in Chisa and people that live in Kabonga. So as Zesco one thing you do that you know that Zesco has the ability to sell if your neighbors with someone Zesco can sell the can sell your neighbor electricity at a lower price and sell you at a higher price. So we call that price discrimination. We'll come across that in in like lecture five or so. So now what I'm saying is that sometimes you find that there are two markets Chisa and Kablonga. So you find that if I'm charge a different price in Chaisa and I'll charge a different price in Kablonga. Why? So if I was to draw the demand curve for people in Chaisa the demand for people in Chaisa because people in Chaisa only rely on Zesco. if they don't have zest electricity, they can't buy a solar panel, they can't buy a gen set and all those things. So meaning that their demand c this is an assumption. This is an assumption. Yeah, I'm just assuming because probably in Chisa you have the largest population of people that don't have money. That's why if I go to Kabonga, if I go to Kablonga, you find that that's where a lot of people are, that's where a lot of people with money are situated. So you find that people in Kablonga don't necessarily rely on Zesco electricity. So because they don't rely on Zesco electricity, you'll find that their demand for Zesco electricity is like this. So now here I'm going into a topic where I'll ask you here you can see that this demand for Chisa is what referred to as inelastic. This demand curve for cababonga is elastic. So if I asked you where are you supposed to increase the price in which market are you supposed to increase the price and in which market are you supposed to reduce the price that that's what we are going into. So now the reason why we're dealing the reason why we're dealing with elasticities is because elasticity has got a part to play with it. Elasticity has a relationship with total revenue.

[00:19:38]So firstly I would start by defining what total revenue is. Total revenue is the price times the quantity of good that are sold right so you can see so if I am a firm and I'm selling phones it will be what is the price of one phone times how many phones have I sold if I multiply the two I have what is referred to as total revenue and why are we doing total revenue because essentially when when I'm talking about profits, profits is total revenue minus total cost. So meaning that if my total revenue is going up, my profits will be going up. So that's why I'm talking about total revenue here. So there is a relationship between your elasticity of demand and your total revenue. So let me go there on top.

[00:20:37]So uh let me start with this here. I said what what is this? I said this demand is what? Elastic. So if I want to calculate my total revenue, how would have my total revenue been? My total revenue. If I was at price one, if I'm at price one, my total revenue is the area of this box, right? It's that shaded region, right?

[00:21:03]See what I mean?

[00:21:05]because it's price times quantity here that's my total revenue then if I asked you suppose I reduce my price further if I reduce my price further to just wait okay done if I reduce my price further to two. I can ask you when your price is two, what is your total revenue? When the price is two, it is price times quantity there. So your total revenue is that portion there, right?

[00:21:52]All together.

[00:21:54]>> Yes.

[00:21:55]>> Repeat.

[00:21:57]>> What is total revenue?

[00:22:00]Total revenue price times quantity.

[00:22:05]So if I ask you if you're at price one, if I'm at price one, I ask you what is your total revenue when your price is one. You're just saying your total revenue when your price is one is the price at one time the quantity at one which is which was that area in brown.

[00:22:23]If I go to price two, I'm at price two here. What is the quantity that was sold? The quantity that was sold I get it from the demand function it's Q2 there. So if I ask you what is your total revenue? Total revenue at 2 is price 2 * quantity 2 which is just that area there.

[00:22:42]Are we together?

[00:22:46]>> Yes.

[00:22:47]So from from there you can see that >> sir here by starting so from there others you can see me right you can see what I'm doing.

[00:23:04]>> Yes I can see >> yes I can see the screen.

[00:23:08]So, so from there you can be able to see that there is something in common between the total revenue for when I'm at price one and the total revenue at price two. This proportion is common to all of them right this portion the one in black it's common to both of them right?

[00:23:31]>> Yes.

[00:23:32]>> Yes.

[00:23:35]>> Yes. So meaning that now let me explain something. So meaning that let's take a situation where my price has reduced. If my price reduces what does that mean?

[00:23:47]This capion is common to both total revenues. But when I reduce my price what's happening I am losing this capion. I'm losing this capion here. I'm losing it. What am I gaining? I'm gaining this portion there. I'm gaining that there. when I reduce my price. So what does logic tell you? Is what you're losing more than what you're gaining?

[00:24:14]>> No.

[00:24:15]>> Yeah. So from there able to you able to see that when demand is elastic when demand is elastic when I reduce my price when price reduces what happens to your total revenue >> total revenue increases it increases so from there able to establish that when demand is elastic. There is an inverse relationship between price. So there is an inverse relationship between price and uh total revenue. If I increase my price, my total revenue reduces. If I reduce my price, my total revenue increases when demand is elastic.

[00:25:10]Perfect.

[00:25:13]Now I'm coming to this other point here.

[00:25:16]I'll do the same thing. I'll do the same thing. What will I do? I'll do the same thing. I'll assume let me assume that first of all I'm at point at price one.

[00:25:30]If I'm at price one, I ask you what is your total revenue? Your total revenue will be this price times this quantity down. So meaning that if I was to shed that it would have been that area, right?

[00:25:46]>> Yes.

[00:25:46]>> Isn't it?

[00:25:48]>> Yes.

[00:25:49]>> So next I ask you >> if the price now was two, what would have been the total revenue? It's price two times the quantity there.

[00:26:02]So what is your total revenue? Your total revenue is that shaded portion there. So you can see that they have something in common. The only thing that's common between the total revenues is that portion there.

[00:26:16]Right?

[00:26:18]So now >> if if I was reducing my price, I will lose out this and I'll gain this portion here.

[00:26:29]I'm gaining that there. So meaning from there you can see that when demand is inelastic when price reduces what's happening to your total revenue >> increases >> at what it increases.

[00:26:51]>> Ah I'm losing this I'm losing this and I'm gaining this one.

[00:26:58]>> It has reduced. Mhm.

[00:27:04]>> total revenue decreases.

[00:27:07]So from there able to establish that when demand is inelastic, there is a direct relationship between price and total revenue. When I increase my price, my total revenue increases.

[00:27:25]When I decrease my price, my total revenue decreases.

[00:27:31]That's the relationship I talk about. So in this in this example for you can see there that the demand for Chisa is what uh inelastic. So what are you supposed to do in Chisa for you to increase your revenue? You're supposed to increase the price of electricity in Kabonga. What are you supposed to do? You're supposed to reduce the price of electricity if you want to make profits as Zesco.

[00:27:59]Perfect.

[00:28:03]I I won't see any questions because I know there are people that haven't got me. You take me back uh to the to the to the things that I've taught. So, you go back to the recording. You can replay me as many times as possible.

[00:28:22]Next.

[00:28:25]Next I'll talk about the price elasticity of demand along a demand cave. So one thing will be for sure if I have a demand cave you can see this is a demand cave. It's downwardly sloping.

[00:28:41]One thing is for sure as I move down this demand curve my price elasticity of demand will be changing because you can see I'm moving from so you can see like for example if I'm at this point if I'm at this point if I'm at that point if I'm at that point if I'm at that point if I'm at that point if I can calculate elasticities at different points on that curve to do that I will use that point method of calculating elasticity of demand. I derived it a long time ago. I said when calculating the price elasticity of demand, it's what?

[00:29:21]Change in Q divide by change in P * P over Q. Isn't it?

[00:29:33]>> Yes.

[00:29:35]>> Perfect. So now I'm sure you've been learning in maths that what do we call this? We call this what the slope.

[00:29:46]So those of you that pass the A level if I asked you does the slope change as you are moving from one point to another point on this cave does the slope change?

[00:30:01]>> No sir it doesn't change. So the slope the slope is always constant right the slope the slope will be constant but the only thing that will be changing is this ratio. So for example what does that mean? If I have two points I have point A there and point K there. You see I have two points. If I look at this point, what does logic tell you? Logic tells you that the price is higher than the quantity, right?

[00:30:42]>> Yes.

[00:30:43]>> If I look at that point there, logic tells me that the quantity is higher than the price, right?

[00:30:50]>> Yes. So meaning that if I were to calculate the elasticity of demand there and there one thing for sure this portion will be the same for both there and there right but the only thing that will be different for both of them will be this ratio there isn't it?

[00:31:16]>> Yes.

[00:31:17]>> Yes. So because of that as you move down this demand cave quite all right your slope will be the same but the only thing that will be varying was will be this ratio here. So that's why if you at this point on your demand cave always you'll find that your price elasticity of demand in absolute term will be equal to infinite which means that demand at this point is perfectly elastic. If you're at this point always the price elasticity of demand will be equal to zero which means that here it's perfectly inelastic. If you're in between the demand function meaning that the distance here is equals to the distance there you find that the price elasticity of demand always be unitary elastic. That's when if you're in between this portion, if you're on this portion there, demand will be what? Elastic.

[00:32:20]If you're in between that portion there, demand will be what? Inelastic.

[00:32:26]That's the general principle that you observe as you are moving down a demand cave. It's a general principle that you observe as you essentially moving down the demand cave.

[00:32:40]Right.

[00:32:44]Are we together?

[00:32:46]>> Yes.

[00:32:50]>> Okay.

[00:32:53]>> Yes.

[00:32:55]>> Okay. Okay. Perfect. So now elasticity of demand can be a has some determinance. So what I'm simply saying there is that there are some factors that affect the elasticity of demand.

[00:33:09]The first factor that affects the elasticity of demand is the availability of substitutes. You remember what substitutes are? I told you substitutes.

[00:33:20]When A and B are substitute, it means that I don't care whether you give me A or you give me B. The only thing I care about is you give me either of them because I'm getting the same level of satisfaction from both of them. So meaning that the more substitutes a good has the more elastic it will be. That's why if you remember in my example for Kabonga I said because in Kabonga people can afford solar panels people can afford jail they have a lot of substitutes for electricity that's why their demand c is elastic if I come to chisa there you find that in chaisa the only substitute that they have if they don't have electricity is a candle right so meaning that their demand will probably be inelastic because they don't have a lot of substitutes for electricity.

[00:34:14]You see my reasoning when I was given that example, right? That's part there of availability of substitutes. The second definition is the width of a the width of the market definition. So for example, if I say here, what I mean is that when defining a good, if I say for example, is there a substitute for cars?

[00:34:47]The substitute for car is cars is what?

[00:34:51]Air travel, bicycle.

[00:34:53]Yeah. Witchcrafty, you can use the carpet and all that. But then >> yeah, a motorbike. If I was to specify saying that what is a substitute of a Toyota crown you see in so in defining the market here I'm simply saying that okay when I define a good in a narrow way like Toyota crown it has a lot of substitutes because the substitute of a Toyota crown can be a Toyota XC it can be a vit See but the moment I don't define the market in a if I define it broadly you find that the like cars cars have got few substitutes but the moment I talk about a particular car it has got many substitutes so that's what I mean there by width of market definition so the more widely the product is defined the fewer the substitutes right so from here you can see car has a fewer substitutes but if I specify maybe Toyota can be a substitute for a Toyota fix that's what I mean that's when there the other factor that cause the other determinant of elasticity is also the time period and the time period I'm assuming so there are certain people that for example if a drink when uh What drink can I talk about? When Fruicana when when Fricana came out, right? When Frana just came out, you you thought as though was different from other drinks, right? That's when when top you know drink for I don't know what it is. Is it fruit? Something like that. It tastes like something like that. So one thing you realize that when just comes out like today as we drink it you realize that there are no substitute for the but one year from now you realize that guava so you realize that certain things have got substitutes as you consuming them over time as you consuming something over time you'll be able to find it substitute. That's what I'm saying here. Saying that the longer the time period, the more elastic the product will be because in the long run, you'll be able to find substitutes for that good. That's what I mean here by a time period. That's when I can talk I can also talk about the number of uses to which a commodity can be put. So for example, if a commodity has got many uses, if a commodity can be used in many instances or has got many uses, you find that the price elasticity of demand will be sort of be great for it to be elastic or for example I can talk about salt.

[00:38:11]There are no there are sort of salt is mostly just used for like few one or two things. That's why you find that the demand curve for sort the demand curve for sort is inelastic because it only has few uses. So meaning that the fewer the uses that something has the demand will be inelastic. The more use the more the more uses something would have the demand would be elastic.

[00:38:40]That's when the last thing that determines the elasticity of demand is the proportion of income spent on a particular commodity. So the price elasticity of demand is low when you spend a small portion of your income on that commodity. So when you spend a small portion of your income on that commodity, the price elasticity of demand will sort of be like be inelastic. But if you spend a large amount of your income on that commodity, the price elasticity of demand mostly tends to be elastic. So with those there, I I don't think there's any like big explanation I need to give. Those are like self-explanatory.

[00:39:27]Are we together?

[00:39:30]>> Yes.

[00:39:32]>> Okay.

[00:39:41]Can you just mute your mics?

[00:39:46]>> Okay. Perfect. Perfect. Perfect. So I you should I finish it today?

[00:39:54]>> Yeah.

[00:39:56]>> Okay. Yeah, I'll finish it today.

[00:39:59]That's why in the last two days probably I'll do question and answer or I can jump into the next topic. What do you think?

[00:40:25]So now let me start something new. So now I'll talk about income elasticity of demand. So now if you remember when I was starting the lecture last time I said that number one when I'm dealing with income elasticity of demand what was I doing? When I was dealing with income in a system of demand, there was this demand function. So what I was what I'm dealing with when I'm dealing with income and assist of demand, I'll hold all these constant hold all these constant change the income by percentage and observe what's happening to the quantity. If I'm doing that, then I'm trying to calculate the income elasticity of demand.

[00:41:14]So just like price elasticity of demand.

[00:41:19]So now when I'm dealing with income elasticity of demand, income elasticity of demand measures the responsiveness of in of quantity demand to income. So if I change someone's income, how is their quantity demand responding? So right income in a system of demand measures just what is the responsiveness of quantity demand to income right. So even by definition to calculate your income in a system of demand it is the percentage change in the quantity demanded divide by percentage change in your income. Just like in price elasticity of demand I had two ways of calculating my price elasticity of demand. There was the point price and the midpoint method.

[00:42:12]Even in here you can calculate your income elasticity of demand using the point method. The formula for the point method is this one. That's why did I provide the one for the midpoint method.

[00:42:25]The formula for the midpoint method of calculating the income elasticity of demand is change in Q / change in Y time income 1 + income 2 divided by quantity 1 + quantity 2. This is how you calculate your income elasticity of demand using the midpoint method. Are we together? So now I'm like in the price elasticity of demand in the price elasticity of demand when I calculate my price elasticity of demand when I want to interpret it I was converting it to an absolute term right but in income elasticity of demand I'm not supposed to convert anything to absolute terms cuz if I have a negative it has a meaning if it is a positive it will have a meaning so whenever I'm calcul calcating my income elasticity of demand. I care about the sign. So sometimes if you calculate your income elasticity of demand and you find that your sign is positive, what does that tell you? It tells you that if you increase your income, you're buying more of the commodity, right? If you increase your income, we you're buying more of the commodity. So meaning that the classification of that good will be a normal good.

[00:43:46]If you find that your if if your income if you find that your income elasticity of demand is negative, it also has a meaning. What does that mean? It means that when we increase your income, you buy less of the good. If you if you buy less of the good, we call that good an inferior good all together.

[00:44:11]>> Yes.

[00:44:12]>> Yes.

[00:44:13]So now sometimes I can further be able to def I can I can further be able to subcategorize a normal good. So sometimes you can so sometimes you can calculate your income elasticity of demand and you find that so this is one this is zero and this is a number greater than one. So if you calculate your elasticity of demand and you find that it is in between zero and one or it is less than one we usually call that as a necessity.

[00:44:46]Right? If you calculate if you find that your price elasticity your income elasticity of demand is in between zero and one we refer to such a good as a necessity.

[00:44:57]That's when if your income in a city of demand is greater than one, we usually refer to that good as a luxurious good.

[00:45:09]Are all together luxurious good that's when graphically I can be able to show this. So here I have a situation where I have someone's income and I have their quantity demanded there. So you can see here if I'm dealing with this uh D1 so you can see what is D1 there with D1 you can see that as I'm increasing someone's income the quantity that they consume is is also increasing so this good is an example of what a normal good this is a normal good that's besides that I can have this other good here what is this other good this other good is that one which is D2 what is D2 D2 is simply saying that as we're increasing someone's income, the amount that they are buying is reducing. What type of good is this? It's an inferior good.

[00:46:04]That's when when I look at D what's this D3 there? What is D3 telling you? D3 is telling you that with this commodity at first when you're consuming it when the ink so when when I'm consuming it when I'm consuming it from here to there it behaves like a normal good cuz you can see there if I'm consuming it there it keeps on increasing increasing it reaches the maximum but when my income passes this threshold you can see that as I as my income increases there I start consuming less of this good. So meaning that in this portion it's an inferior good. So there are certain goods where that can be both inferior and normal goods. So it will be an inferior. For example, this can 5,000.

[00:46:57]So when your when your salary is increasing but lower than 5,000, it will be behaving like a normal good. The moment your salary just crosses 5,000, it will start behaving like an inferior good. So there are certain type of goods that behave like that.

[00:47:15]Are we together?

[00:47:17]>> Um so could you give an example of a good that behaves like that?

[00:47:22]>> Uh people's preferences are different.

[00:47:25]People's preferences are different.

[00:47:29]So you can find the someone probably like they say if you it's preferences are individual. What I like, you can't like an SDA doesn't eat pork. I eat pork. So you can find that. For example, we can talk about >> what do you like?

[00:47:54]>> Even though I tell you it's not like you're buying me what I like.

[00:47:58]Okay, let's talk about phones. Someone had someone had S S24 S26 26 >> so we can talk of a person that gets a 10,000 right at first they had S20 S1 I don't know so let's deal with the Samsung's so let's say there was an S10 Right? So meaning that as someone's income keeps on increasing they start progressing from S10 to S 20 but the moment their salary just reaches 30p they forget about the Samsung's and start going into the iPhones. So that's an example of a good that was so meaning that the Samsung in here was an example of a good that's what that's both a normal and an inferior good.

[00:49:06]So that's an example. So essentially just what I'm just telling you is that in reality there are certain goods where when your income is below a certain amount and they keep on increasing your amount below that target amount the quantity that you consume will increase but if you pass that threshold when we increase your income you start consuming less. These are just points you'll be able to figure that type of good by yourself next. So is there any question?

[00:49:37]>> Yes, I have a question.

[00:49:39]>> Yes, sir.

[00:49:46]>> No, no, no, no. There's no for now just know that there's a good that behaves like a normal and an inferior.

[00:49:55]So, so is it okay to say like a substitute good can behave as both an inferior and a normal good because of the example you give it like the iPhone is substituting the Samsung.

[00:50:09]>> No, no, no, no, no. What are you saying?

[00:50:12]Whenever I'm talking about normal goods and substitute goods, one thing I want to put you put attention is that I'm talking about the Whenever I'm talking about normal goods and inferior goods, the only thing I want to put to your head is that we're talking about income. Whenever I start talking about substitutes and compliments, it means that it's the price of good X divided by the quantity of good Y. So it's sort of like the the price of a related goods. Are we together? So never mix the two.

[00:50:52]I have a question. Yes. Yes.

[00:50:57]So when a good or income is elastic means it's easy to manipulate or it can apply more.

[00:51:10]I did hear your question income is it means it's manipulate.

[00:51:24]So listen, so here there is no so I didn't get your question but here when we're talking about elastic when I'm talking about the interpretations of income elasticity of demand I haven't said anything about elastic inelastic when you calculate the income elasticity of demand the only interpretation I expect you to give me is the good is a normal good the good is an inferior good that's all if you want you can go an extra mile and say okay this good is a normal good but I have seen that the price elastic that the income elasticity of demand is greater than one so I can classify that good as a luxurious good or if you want you can say quite all right I've seen that the income of demand is positive so this good is a normal good but I can go an extra mile I've realized is that the income in a system of demand is in between zero and one therefore I'll classify it as a normal good that's the only interpretation you're making here not elastic in elastic are we together don't overink just take it as it is next now remember let me do this one 5 minutes is way too much for me to finish that last part but if you want you can drop out you watch the recording. So next remember when I was talking about this demand function I said that sometimes you see this is the demand for good X and this is the on price the price of good X. So if I deal with this this was what I was referring to as on price elasticity of demand. But now what I want to do is that I'll hold the own price constant and I'll hold all these things constant. What am I doing? I am analyzing the impact of a the price of a different demand of a different good. Like for example here I can be talking about how does the price of an affect the quantity demand of a Samsung. So you can see those that's the price and the quantity of a different good. If I'm dealing with that that is called the cross price cross price elasticity of demand. So with the cross price elasticity of demand just like the price elasticity of demand and the income elasticity of demand you can you can also be able to define it here. So cross price of demand what does it do? It measures the responsiveness of the quantity demand of one good to the proportionate change in the price of another good. Right? So when calculating the cross price of demand is the percentage change in the quantity demand of good X divided by the percentage change in the price of good Y. So it's the percentage change in the quantity demand of good X divide by the percentage change in the price of good Y. So with that even in here you can use the point method and you can use the midpoint method. I've taught you how to do that. So to calculate the uh cross price cross price elasticity of demand using the point method to be change in the quantity demand of good X divide by change in the price of good Y time price Y1 plus price Y2ide by quantity X1 plus quantity X2. This is for the midpoint method. This is the midpoint method. With the point method, how will I do it? With the point cross elasticity of demand, it would have been change in quantity demand of good X divide by change in price of good Y times price Y over quantity X1. Right?

[00:55:37]So now if you calculate the cross price of demand even in here when you calculate your cross price of demand don't convert the answer to absolute tense because if I find a positive answer it means something else. If I find a negative answer it means something else. Do you remember when I was defining a substitute what did I say? I was saying if you go and shop right, if you go and shop right and you find the price of Coca-Cola has gone up, what will happen to the quantity demand of Pepsi?

[00:56:18]Huh?

[00:56:20]>> It will increase.

[00:56:21]>> It will go up.

[00:56:22]>> It will go up. So from there able to see that there's a positive relationship. So if two goods are substitutes, the cross price of demand will be positive. If two goods are compliments, the cross price elasticity of demand will be negative.

[00:56:40]If there is no relationship between the two goods, the cross price elasticity of demand will be zero.

[00:56:48]Are we together? And you can see there that I've wrapped up everything within uh 2 minutes. So that's that. Is there any question?

[00:56:58]>> No sir.

[00:57:01]others. Is there any question?

[00:57:04]>> No.

[00:57:04]>> No. No.

[00:57:06]>> No.

[00:57:07]>> Perfect. Perfect. Perfect.

[00:57:11]>> So have a good one. Tomorrow. Tomorrow I can start. I can start. I can start supply. How is it, bro?

[00:57:29]>> Take it easy, my guy.

[00:57:33]>> Just take our time. We're not rushing.

[00:57:37]>> Relax today.

[00:57:42]>> Pushing the answer, bro.

[00:57:44]>> Okay. Okay. Bye.

[00:57:46]>> Yeah. Relax.

[00:57:50]Hope you hope you still >> Yes, ma'am.

[00:58:16]Am I am I the only one who feels like micro is harder than micro is all the month blah blah blah.