Professional Documents
Culture Documents
On
Mobile Telephony in India
Objectives
To understand the concept of elasticity of demand & discuss various types of
elasticity of demand.
To understand the link between price elasticity of demand, revenue and
business decision.
Analysis
1. Price and Cross Elasticity
Price elasticity of demand is a measure used in economics to
show responsiveness or elasticity of the quantity demanded
of a good to a change in price.
Year
Quantity
(in millions)
Price
2005-06
32
2000
2006-07
60
1500
2007-08
1000
Quantity
Demanded
50
30
1500
2000
Price
Mobile Phone
(in millions)
Fixed Phone
(in millions)
2005
32
0.40
2006
60
0.25
Py
Two goods that are substitutes have a positive CED as the price
of good Y rises the demand for good X rises.
Py
The coefficient E
commodity.
On the other hand, if an increase in income leads to a fall in the demand for a
Normal goods are of three types: necessaries, luxuries and comforts. In the case of
luxuries, the coefficient of income elasticity is positive but high, E y> 1.
= 1)
when the demand for a commodity rises in the same proportion as the
increase in income.
In the beginning of
The income elasticity of demand for mobile phones was estimated to be 2.45^5
and this made mobile phone a luxury in the technical sense of economics.
A study using household sample data from karnataka, however found out that a
rise in the monthl household income of households by 5% increases mobile
phone services to the extent of 0.638% which makes mobile phone a necessity
good rather than a luxury good.
3. Relationship between
Total Revenue
&
Price Elasticity of Demand
E>1
TR
200
150
100
50
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-50
Years
1.
2.
3.
30
25
20
15
10
5
0
1
3
PRICE
4
QUANTITY
PRICE
QUANTITY
10
15
13
25
20
35
How
It
Went
Wrong?
N
O
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C
N
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S
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