BTT107_CU -SEM II- BSC TTM-Tourism Economics (1)-converted

bid and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price). TSA is prepared by bringing together the demand side and the supply side information for the industries producing ´tourism commodities. The Domestic Tourism Survey and International Passenger Survey, together provide the demand side information, while for the supply side, the source of data has been identified clearly for each industry. The demand and supply side data are compiled to prepare the relevant tables to estimate the direct share of tourism value added in GDP and employment. Tourism output multipliers are generated to get the indirect contribution of tourism sector KEYWORDS In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. A market system (or market ecosystem) is any systematic process enabling many market players to bid and ask: helping bidders and sellers interact and make deals. In economics, a free market is a system in which the prices for goods and services are self- regulated by the open market and by consumers A credential is a piece of any document that details a qualification, competence, or authority issued to an individual by a third party with a relevant or de facto authority or assumed competence to do so. LEARNING ACTIVITY 1. Define how Tourism Information system helps in providing better tourist services. 2. Discuss how price mechanism and resource allocation are correlated. [email protected] Irrelevant keywords Unjustified, kindly add relevant keywords.

UNIT END QUESTIONS A. Descriptive Questions 1. Define price. What do you understand by price mechanism? 2. What are the functions of price mechanism? 3. What are the characteristics of tourism of economics? 4. What do you understand by tourism information system? 5. What is tourism satellite account? B. Multiple Choice Questions (Mcq’s) 1. In free economy the decision about investment, saving and consumption are decided by a. Price mechanism b. Central bank ; c. Planning Commission ; d. Finance budget 2. Adam Smith called price mechanism as a. Consumer sovereignty b. Invisible hands c. Consumer liberty d. Price regulation [email protected] 3. TSA is prep ared by bringing together the demand side and the supply --------------------------------s--i-d--e---i-n--f-ormat ion for the industries producing ´................ Commodities. Add separate short and long descriptive questoins.

a. Tourism b. Market c. Product d. System 4. ………. can be defined as computer- aided systems through which tourists can access the information they search simply and fast. a. Tourism Inspection System b. Tourism Information System c. Tourism Inspection Software d. Tourism Interest Software 5. Price Mechanism plays a vital role in determining prices in a capitalist…………. . a. Economy b. Market c. Product d. Price Answer 1. a 2. b

3. a 4. b 5. a SUGGESTED READINGS • Pettinger, T. (n.d.). Price Mechanism in the Long Term. or price mechanism is the mechanism in which price plays a key role in directing the activities of producers, consumers and resource suppliers. In Economics Help. Retrieved April 10, 2011 , from http:// www. economicshelp. org/microessays/equilibrium/ price- mechanism- long-term. html • Pettinger, T. (n. d.). Price Mechanism in the Long Term. In Economics Help. Retrieved April 10 , 2011, from http://www. economicshelp. org/microessays/equilibrium/ price- mechanism- long-term. html [email protected] This type of references are not recommended.

UNIT - 3 WTO STRUCTURE 1. Learning objectives 2. Introduction 3. History 4. Tourism statistics 5. Tourism and/or holiday surveys 6. The tourism production index 7. Role of TFCI in tourism development 8. Summary 9. Keywords 10. Learning activity 11. Unit end questions 12. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the World Tourism Organization and the role of WTO • Tourism statistics • TFCI and the role of TFCI INTRODUCTION The World Tourism Organization (UNWTO) is the United Nations specialized

agency entrusted with the promotion of responsible, sustainable and universally accessible tourism. It is the leading international organization in the field of tourism, which promotes tourism as a driver of economic growth, inclusive development and environmental sustainability and offers the sector leadership and support in advancing knowledge and tourism policies worldwide. It serves as a global forum for tourism policy issues and a practical source of tourism research and knowledge. It encourages the implementation of the Global Code of Ethics for Tourism to maximize the contribution of tourism to socio- economic development, while minimizing its possible negative impacts, and is committed to promoting tourism as an instrument in achieving the United Nations Sustainable Development Goals (SDGs), geared towards eliminating poverty and fostering sustainable development and peace worldwide. UNWTO generates market knowledge, promotes competitive and sustainable tourism policies and instruments, fosters tourism education and training, and works to make tourism an effective tool for development through technical assistance projects in over 100 countries around the world. UNWTO' s membership includes 158 countries, six territories and over 500 affiliate members representing the private sector, educational institutions, tourism associations and local tourism authorities. Its headquarters are in Madrid, Spain. HISTORY The origin of UNWTO stems back to 1925 when the first international congress of official tourist organizations was held at The Hague. The congress continued to meet annually and in 1930 , it decided to form a formal union, which in 1934 became the International Union of Official Tourist Publicity Organizations (IUOTPO). Following the end of the Second World War and with international travel numbers increasing, the IUOTPO restructured itself into the International Union of Official Travel Organizations (IUOTO). A technical, non-

governmental organization, the IUOTO was made up of a combination of national tourist organizations, industry and consumer groups. The goals and objectives of the IUOTO were to not only promote tourism in general but also to extract the best out of tourism as an international trade component and as an economic development strategy for developing nations. Towards the end of the 1960 s, the IUOTO realized the need for further transformation to enhance its role on an international level. The 20 th IUOTO general assembly in Tokyo, 1967, declared the need for the creation of an intergovernmental body with the necessary abilities to function on an international level in cooperation with other international agencies, in particular the United Nations. Throughout the existence of the IUOTO, close ties had been established between the organization and the United Nations (UN) and initial suggestions had the IUOTO becoming part of the UN. However, following the circulation of a draft convention, consensus held that any resultant intergovernmental organization should be closely linked to the UN but preserve its \"complete administrative and financial autonomy\". It was on the recommendations of the UN that the formation of the new intergovernmental tourism organization was based. Resolution 2529 of the XXIVth UN general assembly stated: In 1970 , the IUOTO general assembly voted in favor of forming the World Tourism Organization (WTO). Based on statutes of the IUOTO, and after ratification by the prescribed 51 states, the WTO came into operation on November 1, 1974. Most recently, at the fifteenth general assembly in 2003 , the WTO general council and the UN agreed to establish the WTO as a specialized agency of the UN. The significance of this collaboration, WTO Secretary- General Mr. Francesco Frangialli claimed, would lie in \"the increased visibility it gives the WTO, and the recognition that will be accorded to [it]. Tourism will be considered on an equal footing with other major activities of human society\".

In 2004 , UNWTO established the World Committee on Tourism Ethics, the implementation body for the Global Code of Ethics for Tourism ( adopted in 1999 ). The Committee, whose members are elected due to their professional capacities rather than their nationalities or country affiliations, promotes and disseminates the Code and evaluates and monitors the implementation of its principles. The Committee was permanently headquartered in Rome in 2008 . Taleb Rifai of Jordan became UNWTO Secretary- General in 2010. Under his mandate the Organization introduced Hotel Energy Solutions (HES), a web- based tool to help hotels reduce their carbon footprint whilst increasing profits, worked with Members on research on benefits of easing visa facilitation, and forecast that in 2030 the number of international tourists would reach 1.8 billion. It reached 1 billion in 2012. Taleb Rifai' s mandate has seen focus placed on the people involved in the tourism experience. Two publications under the tit le \"Tourism Stories\" were released compiling research and interviews with individuals working in tourism from around the world. TOURISM STATISTICS The United Nations recognizes the World Tourism Organization as the appropriate organization to collect, to analyse, to publish, to standardize and to improve the statistics of tourism, and to promote the integration of these statistics within the sphere of the United Nations system. “Official statistics provide an indispensable element in the information system of a democratic society, serving the government, the economy and the public with data about the economic, demographic, social and environmental situation.” Fundamental Principles of Official Statistics

The UNWTO Statistics Department is committed to developing tourism measurement for furthering knowledge of the sector, monitoring progress, evaluating impact, promoting results- focused management, and highlighting strategic issues for policy objectives. The department works towards advancing the methodological frameworks for measuring tourism and expanding its analytical potential, designs practical guidance for their implementation in countries, supports statistical strengthening in countries through capacity building, and compiles and disseminates tourism statistics of countries all over the world. The overall mission of the Statistics Department consists of: • Development of national Systems of Tourism Statistics (STS) following the International recommendations for Tourism Statistics 2008 (IRTS 2008). • Design of the required guidance, initiatives and tools for the implementation of STS in countries. • Advancement of the international comparability of tourism statistics. • Dissemination of the Tourism Satellite Account (TSA) conceptual background for economic analysis and promotion of the UNWTO TSA in line with the Tourism Satellite Account: Recommended Methodological Framework 2008 (TSA: RMF 2008 ). • Support to Member States in their efforts to advance the measurement and economic analysis of the tourism sector. • In this regard, the Department focuses its activities biennium 2018 - 2019 on: • Collection, compilation and international comparability of tourism statistics and TSA. • Translating the methodological framework into practical compilation

guidance for countries. • Advancing the methodological frameworks for measuring tourism, in particular for the measurement of sustainable tourism, in order to strengthen the normative role of UNWTO and in the framework of the SDGs and the need to monitor them. • Permanent cooperation on statistics within the United Nations System, notably on Sustainable Development Goal indicators. • Disseminating knowledge. • Capacity-building. STATISTICAL DATA UNWTO systematically gathers tourism statistics from countries and territories around the world into a vast database that constitutes the most comprehensive statistical information available on the tourism sector. The database, updated regularly, is composed by the following sets of data: Statistical information on tourism’ s multiple facets is pivotal in advancing knowledge of the sector, monitoring progress, promoting results- focused management, and highlighting strategic issues for policy decisions. The Compendium provides statistical data and indicators on inbound, outbound and domestic tourism, as well as on the number and types of tourism industries, the number of employees by tourism industries, and macroeconomic indicators related to international tourism. The Compendium of Tourism Statistics is a reference guide for the measurement and analysis of the tourism sector. Together with the Yearbook of Tourism Statistics, they constitute UNWTO’s main datasets and publications on annual tourism statistics.

These concern, on the one hand, an expansion in the number of countries and territories (over 200) regularly providing data and, on the other hand, a more extensive set of collected statistical data and indicators that are in line with current international methodological standards. UNWTO compiles figures from national and international institutions such as national tourism administrations, national statistical offices, central banks, the International Monetary Fund and the World Bank and have undergone various checks from UNWTO that guarantee data reliability. The 2020 edition presents data for 203 countries from 2014 to 2018 , with methodological notes in English, French and Spanish. Understanding, for each country, where its inbound tourism is generated is essential for analyzing international tourism flows and devising marketing strategies, such as those related to the positioning of national markets abroad. The Yearbook focuses on data related to inbound tourism (total arrivals and overnight stays), broken down by country of origin. Together with the Compendium of Tourism Statistics, it constitutes UNWTO’s main dataset and publication on annual tourism statistics. Quick overview of contents: Arrivals

Border statistics Table 1. Arrivals of non- resident tourists at national borders Table 2. Arrivals of non- resident visitors at national borders Statistics on accommodation establishments Table 3. Arrivals of non- resident tourists in hotels and similar establishments Table 4. Arrivals of non- resident tourists in all types of accommodation establishments. Overnight stays Table 5. Overnight stays of non- resident tourists in hotels and similar establishments Table 6. Overnight stays of non- resident tourists in all types of accommodation establishments. Arrivals data correspond to international visitors entering the economic territory of the country of reference and include both tourists and same- day, non- resident visitors. Overnight stays refers to the number of nights spent by non- resident tourists in accommodation establishments (guests). Figures are compiled by UNWTO from official sources which may, in turn, obtain data from different sources: border statistics derived from administrative records (police, immigration, traffic counts, and other types of controls), border surveys and registrations at accommodation establishments. The 2020 edition presents data for 197 countries from 2014 to 2018 , with methodological notes in English, French and Spanish.

In addition to the Compendium of Tourism Statistics and the Yearbook of Tourism Statistics, and in order to complement the still relatively limited outbound tourism statistics provided directly by countries, UNWTO estimates data for countries’ outbound tourism flows (i. e. tourism of resident visitors outside the economic territory of the country of reference). This is done on the basis of data supplied by each of the destination countries and therefore corresponds to arrivals in these countries (and not to Departures data provided by the country of reference and compiled in the Compendium of Tourism Statistics). TOURISM AND/OR HOLIDAY SURVEYS Whether you are operating a visitor attraction, working in the travel industry, or for a transportation organization, understanding how, why and where people travel is essential in delivering a great customer experience. Any software is used by every type of travel- related organization including: Visitor attractions such as Museums and Art Galleries, Resorts and Hotels, Theme Parks, Zoos and Aquariums, and Sports Clubs and Fitness Clubs. Transport companies running Rail, Road, Sea and Air travel services including Rail passenger and freight companies, Bus and Coach companies, Airlines and Cruise Operators. Travel and transportation organizations such as Airport and Port Authorities, Transit and Transport Authorities, Transport Planning organizations and Tourist Boards. Research Services that can help out just when you need it Travel and tourism surveys can be outsourced in part or in full to our Research Services team. With a wealth of experience in this area, Research Services ensures that the objectives identified in the research brief are met, data is collected and managed to the highest levels of accuracy, and results

are presented in an intelligible yet comprehensive form. Whether it is help developing questionnaires, translating into other languages, developing sophisticated Smart Reports, or just hosting online surveys, Research Services can assist. Research Services is a professional survey management service with over 25 years’ experience. No matter how small or large the survey task, our Research Services team can help. THE TOURISM PRODUCTION INDEX Economists, business people and governments are often interested in finding out the rate of growth of certain economic variables, such as population, GNP, money supply, employment, productivity and trade deficit. Suppose we want to find the growth rate of personal consumption expenditure on services. Let Yt denote real expenditure on services at time t and Y0 denote the initial value of the expenditure on services. We may also recall the following well- known compound interest formula. Here, the basic model is,

The WES Tourism Production index (T.I.) covers two aspects of the tourism industry: data collection for each and every sub-sector in tourism and measurement of performance (Bruges and hinterland area, West Flanders region in Belgium 1962). The number and variety of the components was such to guarantee coverage of all measurable aspects of the tourism activity of the region. The index is given below: The weights for three categories were 0.2, 0.5 and 0. 3 for arrivals, accommodation and attraction, respectively. The accommodation sector was considered to be the most important as it indicates the core tourism infrastructure and actual demand for tourism. The weight for each component in each category was different. The weights for tourist arrivals ( for different components) were 0.8 and 0.2 for domestic tourists and their international counterparts, respectively. The weights for accommodation units were 0.3 and 0.7 for standard accommodation and economy class accommodation, respectively. The room rent per person per night was Rs. 800 or more for standard accommodation, while rooms available at less than Rs. 800 were categorized as economy class. The third was attraction which had two associated weights of 0.75 and 0.25 for leisure and other components, respectively. All the category and component weights were based on the opinion survey among industry leaders and higher level government officials in Sikkim. ROLE OF TFCI IN TOURISM DEVELOPMENT Tourism Finance Corporation of India was set up a specialized all India Financial Institution to financing/ funding requirements of the Tourism and Hotel industry. It was sponsored by IFCI along with other financing

institutions and banks which are notified as Public Financial Institutions under Section 4-A of the Companies Act 1956 and have Financing Participation scheme of all India financial institutions. Tourism Finance Corporation of India was incorporated as a public limited company under the Company Act, 1956 on 27th January 1989 . The operational activities were started on 1st February 1989. It was set up as a specialized cell to cater to the needs of Tourism and Hotel Industry. It was expected to ensure priority in funding tourism and tourism- related projects. TFCI has to undouble made a dent in the tourism sector. It has been showing better performance since its inception in 1989. The investment of TFCI has grown appreciably over the year from Rs. 265 crores to Rs. 6,978 crores in 2001 -02. TFCI is a commercial venture and hence it cannot afford to finance those tourism and hotel project which do not ensure recovery of interest and the principal amount of loan in time. It will help TFCI in generating some surplus which is so essential for further expansion of its activities. Organizational Structure of TFCI Generally, the organizational structure serves three basic functions. These includes: (i) It intends to produce output to achieve the business objectives. (ii) It minimizes the influence of individual variation on the organization. (iii) It helps in performing activities, decisions and other relationships in a systematic manner. The organizational structure of TFCI is consisting of the board of directors, managing directors and other professional staff at middle and lower levels. Theoretically, the board of directors is a supreme organ of the management of TFCI. However, in practice, the managing director wields the real power because of directors almost delegates its powers to the managing directors

(M. D). The main function of the board is to formulate the policies and strategies while M. D is responsible for the execution and implementation of these policies and strategies. He directs, co- ordinates and controls day to day functioning of TFCI. Objectives of TFCI According to Memorandum and articles of associations, the main objectives of TFCI are: To commence and carry on the business of assisting industrial, commercial, professional and trading enterprises – corporate bodies, partnership firms, trust, individuals or other concern whosoever constituted and engaged or to be engaged in setting up and development of tourism, hotel, and tourism- related activities. To commence and carry on the business of lending or granting by way of loans or advances in rupees and/or foreign currency or in any other form money with or without interest or with or without security for the purpose of assist ing enterprises in India. To commence and carry on the business of facilitating, through the grant of loans and other financial, technical and professional assistance, the acquisition, maintenance, modification, construction, reconstruction, refurbishing and renovation of tourism and travel related activities. To commence and carry on the activities of coordinating and formulating guidelines and policies relating to the financing of all such projects in the tourism and tourism- related activities, facilit ies and services. To commence and carry on the development and promotional functions with regard to tourism and tourism- related activities. To commence and carry on the business of merchant banking and other allied activities.

To commence and carry on the business as assessors, designers, draftsman, estimators, surveyors and other materials. To commence and carry on or be interested in the business of buying, selling, distributing, leasing, exporting and importing of furniture, machinery, equipment, and other material. To carry on business as share brokers and agents of insurance for all kinds and for all of the risks. To carry on the business of agents for the central or state government or any other international or national institution or organization in the transaction of any business concerned with tourism and tourism- related activities, facilit ies and services. Operations of TFCI TFCI provides all forms of financial assistance to enterprises for setting and developing travel and travel related activities, facilit ies and services. It also coordinates and formulates policies and strategies related to the financing of tourism projects. Since its inception, the company has been playing a catalytic role in providing all forms of financial assistance for new, expansion, diversification and modernization project in the tourism industry and related activities. The major function of TFCI are following as: Rupee loans Underwriting of public issue of share/debenture and direct subscription on such securities. Guarantee for deferred payments and credits raised in India and/ or abroad. Equipment finance and equipment leasing. Assistance under supp lier’s credit. [email protected] Highlight the headings and add proper descpirtionof these functions.

Merchant Banking and Advisory services. TFCI is operating on similar lines as other all India Financial Institutions. It provides financial assistance for the project in the tourism industry on its own and in consortium with other all India Financial Institutions, namely IFCI, IDBI, and ICIC. The tourism projects financed by TFCI include inter alia Hotel restaurants, Holiday Resorts, Amusement Parks and Sports, Safari Park Ropeways, Convention Halls, Transport, Travel, and Tour operating agency, Air Taxi Services, Tourist Emporia, Sports facilities etc. TFCI is a financing non- conventional and small projects which were not eligible for institutional finance earlier but are heaving great importance from tour point of view. Hence, TFCI is playing a developmental role for promote of tourism within the overall policies of the Government of India. The present product line of TFCI consist following main areas: (a) Project Financing (b) Financial Services (c) Investment Roles of TFCI The TFCI has been endeavoring to take such steps which are considered vital in preparing the base of the tourism industry in the country. TFCI has been playing an increasingly important role. These are following as: To provide assistance to the project located in identified backward and hill areas of the country. It plays a vital role in achieving the growth targets set for the travel and tourism industry. It plays a pivotal role in motivating private investors to put their fund in

travel related projects. TFCI helps in attracting more and more investment into the non- conventional segments of tourism industry such as adventure tourist resorts, ropeways, human resource training, institutes, ferries, and air taxis and other tourism promotional facilit ies. To suggest a measure, TFCI should forecast the financial requirements of the travel and tourism sector. To maintain good coordination among enterprises and other financial institutions. Travel and Tourism infrastructure requires an extensive investment of both public and private sectors to finance the preliminary planning, development stages, and fixed assets. Due to the huge investments, travel and tourism industry are also known as the ‘ capital- intensive industry’. ITFC plays an important role in the promotion and development of tourism in India. SUMMARY The World Tourism Organization (UNWTO) is the United Nations agency responsible for the promotion of responsible, sustainable and universally accessible tourism. As the leading international organization in the field of tourism, UNWTO promotes tourism as a driver of economic growth, inclusive development and environmental sustainability and offers leadership and support to the sector in advancing knowledge and tourism policies worldwide. KEYWORDS • dminist rat ive data: Administ rat ive data is the set of units and data derived from an administrative source. This is a data holding info rmat io n collected and maint ained for the purpose of implement ing [email protected] --------------------------------o--n--e---o--r--m- ore administrative regulations. Irrelevant keywords.

• Aggregated data: The result of t ransforming unit level data into quantitative measures for a set of characteristics of a population. • Aggregation: A process that transforms microdata into aggregate- level information by using an aggregation function such as count, sum average, standard deviation, etc. • Analytical unit: Entity created by statisticians, by splitting or combining observation units with the help of estimations and imputations. • Balance of payments: The balance of payments is a statistical statement that summarizes transactions between residents and non- residents during a period. It consists of the goods and services account, the primary income account, the secondary income account, the capital account, and the financial account LEARNING ACTIVITY 1. Discuss how tourism statistics are changing in modern world and also state show that statistics is changing dimension of tourism industry 2. Draw a board showing how TFCI helps new entrants in tourism industry _ UNIT END QUESTIONS A. Descriptive Questions 1. What is WTO? 2. What are the functions of WTO? 3. What is TFCI?

4. What is the role of TFCI? 5. What is the process of tourism surveys? B. Multiple Choice Questions (Mcq’s) 1. ……….companies running Rail, Road, Sea and Air travel services including Rail passenger and freight companies. a. Transport b. Rail c. Road d. Air 2. TFCI stands for a. Tourism Finance Corporation of India b. Transport Finance Corporation of India c. Tourism Finance Corporation of Indonesia d. Tourism Fare Corporation of India 3. TFCI incorporated in year: a. 1990 b. 1970 c. 1989 d. 1996

4. The tourism projects financed by ………… include inter alia Hotel restaurants, Holiday Resorts, Amusement Parks and Sports, Safari Park Ropeways, Convention Halls, Transport, Travel, and Tour operating agency a. TFCI b. TFCF c. TFDI d. TFCA 5. Towards the end of the …………… s, the IUOTO realized the need for further t ransformation to enhance its role on an international level. a. 1965 b. 1961 c. 1962 d. 1960 Answer 1. a 2. a 3. c 4. a 5. d

SUGGESTED READINGS • Simon Osborne (27 September 2016 ). \"Don't look now, Venice tourists - the locals are sick of you\". The Guardian. Retrieved 10 May 2018 . • ^ \"Ccruise News\". June 2012 . Retrieved 17 December 2012 . • ^ \"The Prinzessin Victoria Luise - world' s first cruise ship\". Cruising the Past. Retrieved 12 August 2018 . • ^ Golden Age of Mass Tourism: Its History and Development, ErkanSezgin and MedetYolal, Anadolu University, p. 73 • ^ Jump up to:a b Golden Age of Mass Tourism: Its History and Development, Erkan Sezgin and Medet Yolal, Anadolu University, p. 74

UNIT -4 ELASTICITY OF DEMAND – I STRUCTURE 1. Learning objectives 2. Introduction 3. Elasticity of Demand 4. Types of Elasticity of Demand: income and cross elasticity’s. 5. Summary 6. Keywords 7. Learning activity 8. Unit end questions 9. Suggested reading s LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the Elasticity of Demand • To understand the methods and types of elasticity of demand INTRODUCTION A change in the price of a commodity affects its demand. We can find the elasticity of demand, or the degree of responsiveness of demand by comparing the percentage price changes with the quantities demanded. In this article, we will look at the concept of elasticity of demand and take a quick look at its various types. [email protected] ELASTICIT-Y OF DEMAND A separate lay man meaning is required. Highlight the definition separately

To begin with, let’ s look at the definition of the elasticity of demand: “Elasticity of demand is the responsiveness of the quantity demanded of a commodity to changes in one of the variables on which demand depends. In other words, it is the percentage change in quantity demanded divided by the percentage in one of the variables on which demand depends.” The elasticity of demand is a measure of a degree of responsiveness of quantity of a product to the change in its determinants. If the demand is more elastic, then a small change in price will cause a large change in the quantity consumed. If the demand is less elastic, then it will take large changes in price to make a change in the quantity consumed. The concept of elasticity of demand shows how much or to what rate the quantity demanded of a commodity will change as a result of a change in the price. According to K.E. Boulding, \"The elasticity of demand may be defined as the percentage change in the quantity demanded which would result from one percent change in its price\". According to Prof. Meyers, \"Elasticity of demand is a measure of the relative change in the amount purchased in response to any change in price or a given demand curve\". According to Lipsey, \"Elasticity of demand may be defined as the ratio of the percentage change in demand to the percentage change in price\". According to Mrs. John Robbins, \"The elasticity of demand at any price or at any output is the proportional change to the amount purchased response to a small change in price, divided by the proportional changes of price\". In brief, the elasticity of demand is defined as the proportionate change in quantity demanded divided by the proportionate change in its determinants like price, income, etc. Symbolically, Elasticity of demand (Ed) = {percentage change in quantity

demand/percentage change in determinants of demand TYPES OF ELASTICITY OF DEMAND The following points highlight the top five methods used for measuring the elasticity of demand. The methods are: 1. Price Elasticity of Demand 2. Income Elasticity of Demand 3. Cross Elasticity of Demand 4. Advertisement or Promotional Elasticity of Sales 5. Elasticity of Price Expectations. Method # 1. Price Elasticity of Demand Price elasticity of demand is a measure of the responsiveness of demand to changes in the commodity’ s own price. It is the ratio of the relative change in a dependent variable (quantity demanded) to the relative change in an independent variable (Price). In other words, price elasticity is the ratio of a relative change in quantity demanded to a relative change in price. Also, elasticity is the percentage change in quantity demanded divided by the percentage in price. Symbolically, we may rewrite the formula: If percentages are known, the numerical value of elasticity can be calculated. The coefficient of elasticity of demand is a pure number i. e. it stands by it self, being independent of units of measurement. The coefficient of price

elasticity of demand can be calculated with the help of the following formula. Where, Q is quantity, P is price, ΔQ/Q relative change in the quantity demanded and ΔP/ P Relative change in price. It should be noted that a minus sign (-) is generally inserted in the formula before the fraction with a view to making the coefficient of elasticity a non- negative value. The price elasticity can be measured between two finite points on a demand curve (called arc elasticity) or on a point (called point elasticity). The proportionate change in quantity demanded for a goods due to the proportionate change in price of goods, other things remaining the same is called price elasticity of demand. Price elasticity is usually symbolized by 'Ep' and written as: Where, Ep = Price elasticity of demand Δ = Small change

Q = Quantity demand P = Price TYPES OF PRICE ELASTICITY OF DEMAND Price elasticity of demand can be discussed under the following five types: i) Perfectly Elastic Demand (Ep = ∞) If the quantity demanded for a goods increases infinitely with a small fall in price or becomes zero with small rise in price, then it is called perfectly elastic demand. In the given figure, the price is measured in OY- axis and quantity demanded is measured along the OX-axis. PD is the demand curve which is parallel to OX- axis. Perfectly elastic demand shows that quantity demanded for a goods increases infinitely with a small fall in price or becomes zero with a small rise in price. ii) Perfectly Inelastic Demand (Ep = 0) If the quantity demanded for a goods doesn't change with any change in price of the goods, then it is called perfectly inelastic demand.

In the given figure, the price is measured in OY- axis and quantity demanded is measured along the OX-axis. QD is the demand curve which is parallel to OY- axis. Here, whatever be the price either OP 1 or OP 2 or OP 3 qu a nt i ty demanded is same as OQ. iii) Relatively Elastic Demand (Ep > 1) If the proportionate change in quantity demanded for a goods is more than the proportionate change in price of the goods, then it is called relatively elastic demand. In the given figure, the price is measured along OY-axis and quantity demanded is measured along OX- axis. D1 D is the demand curve which is relatively elastic. Here, increase in quantity demanded from OQ 1 to OQ 2 is

more than the decrease in price from OP 2 to OP 1 . Thus, it indicates perfectly elastic demanded. iv) Relatively Inelastic Demand (Ep < 1) If the proportionate change in quantity demanded for a goods is less than the proportionate change in price of the goods, then it is called relatively inelastic demand. In the given figure, the price is measured along OY-axis and quantity demanded is measured along the OX-axis. D1 D is the demand curve which is relatively inelastic. Here, the increase in quantity demanded for a goods from OQ 1 to OQ 2 is less than the decreases in price of the goods from OP 2 to OP 1 . So, it indicates relatively inelastic demand. v) Unitary Elastic Demand (Ep = 1) If the proportionate change in quantity demanded for a goods is equal to the proportionate change in price of the goods, then it is called unitary elastic demand.

In the given figure, the price is measured along OY-axis and quantity demanded is measured along the OX-axis. D1 D is the demand curve which is unitary elastic, Here, the increase in quantity demanded for a goods from OQ 1 to OQ 2 equal to the decrease in price of goods from OP 2 to OP 1 . So, it indicates unitary elastic demand. Method # 2. Income Elasticity of Demand The responsiveness of quantity demanded to changes in income is called income elasticity of demand. With income elasticity, consumer incomes vary while tastes, the commodity’s own price, and the other prices are held constant. The income elasticity of demand for a good or service may be calculated by the formula: where- ey stands for the coefficient of income elasticity, Y for income.

Whereas price- elasticity of demand is always negative, income- elasticity of demand is always positive ( except for inferior goods) as the relationship between income and quantity demanded of a product is positive. For inferior goods the income elasticity of demand is negative because as income increases, consumers switch over to the consumption of superior substitutes. Method # 3. Cross Elasticity of Demand Demand is also influenced by prices of other goods and services. The cross elasticity measures the responsiveness of quantity demanded to changes in price of other goods and services. Cross elasticity of demand is defined as the percentage change in quantity demanded of one good caused by a 1 percentage change in the price of some other good. Cross elasticity is used to classify the relationship between goods. If cross elasticity is greater than zero, an increase in the price of y causes an increase in the quantity demanded of x, and the two products are said to be substitutes. When the cross- elasticity is greater than zero, the goods or services involved are classified as complements Increases in the price of y reduces the quantity demanded of that product. Diminished demand for y causes a reduced demand for x. Bread and butter, cars and tires, and computers and computer programs are examples of pairs of goods that are complements. The coefficient is positive if A and B are substitutes because the price change and the quantity change are in the same direction. The coefficient is negative if A and B are complements, because changes in the price of one commodity cause opposite changes in the quantity demanded of the other. Other things such as consumer taste for both commodities, consumer incomes and the price of the other commodity are held constant.

Method # 4. Advertisement or Promotional Elasticity of Sales The advertisement expenditure helps in promoting sales. The impact of advertisement on sales is not uniform at all level of total sales. The concept of advertising elasticity is significant in determining the optimum level of advertisement outlay particularly in view of competitive advertising by rival firms. An advertising elasticity could be defined as the percentage change in quantity demanded for a percentage change in advertising. Advertising might be measured by expenditure. Advertising elasticity may be measured by the following formula: Method # 5. Elasticity of Price Expectations People’ s price expectations also play a significant role as a determinant of demand. J.R. Hicks, the English economist, in 1939 , devised the concept of elasticity of price expectations. The elasticity of price expectations may be defined as the ratio of the relative change in expected future prices to the relative change in current prices. SUMMARY A change in the price of a commodity affects its demand. We can find the elasticity of demand, or the degree of responsiveness of demand by comparing the percentage price changes with the quantities demanded. In this

article, we will look at the concept of elasticity of demand and take a quick look at its various types. KEYWORDS • Demand curve: The curve that gives the quantity consumers will buy at each possible price. • Demand shock: An unexpected change in aggregate demand, such as a rise or fall in autonomous consumption, investment, or exports. See also: supply shock. • economic cost: The out- of- pocket cost of an action, plus the opportunity cost. • economic profit: A firm’ s revenue minus its total costs ( including the opportunity cost of capital). • price elasticity of demand: The percentage change in demand that would occur in response to a 1% increase in price. We express this as a positive number. Demand is elastic if this is greater than 1, and inelastic if less than 1 LEARNING ACTIVITY 1. A local firm produces three types of pizza, for delivery to homes in the area. The owners have completed research, to discover the demand curves for each of the three pizzas. The schedules are shown below: (Quantities are per week). Price Pizza A (Qd) Pizza B (Qd) Pizza C (Qd) 12 800 0 100 11 840 0 200 10 880 400 300 9 920 800 400 8 960 1200 500 7 1000 1600 600

6 1040 2000 700 5 1080 2400 800 Plot the three demand curves, on one graph. Calculate PED for all three pizzas over the price range £9 to £10. For pizza C only, what price must be charged if the firm wishes to maximize its sales revenue? 2. RCO Manufacturing is an electronics manufacturer and retailer. Its main products are Ultrabook computers, PCs and calculators. The current price of the Ultrabook is £500, the PC is £800 and the calculator is £40. This year the firm sold 10,000 ultra- books, 20 ,000 PCs and 1 million calculators. In an attempt to improve revenue, the managers of the firm have decided to increase all prices by 10%. Market research has suggested that the price elasticity of demand for each product is: Ultrabook: (-) 1.5; PC: (-) 2.5; calculator: (-) 0.6 You have been asked to evaluate the planned price increases. Comment on the planned price changes. Would a 10% price reduction have been better for some or all of the products? What benefit (if any) would advertising bring to the firm? UNIT END QUESTIONS A. Descriptive Questions 1. Do you think the price elasticity of demand for Ford sport- utilit y vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer. a. Other car manufacturers,

such as General Motors, decide to make and sell SUVs. b. SUVs produced in foreign countries are banned from the American market. c. Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars. d. The time period over which you measure the elasticity lengthens. During that longer t ime, new models such as four- wheel- drive cargo vans appear. 2. The accompanying table gives part of the supply schedule for personal computers in the United States. Price of computer Quantity of computers supplied $1,100 12,000 $900 8,000 a. Calculate the price elasticity of supply when the price increases from $900 to $1,100 using the midpoint method. b. Suppose firms produce 1,000 more computers at any given price due to improved technology. As price increases from $900 to $1,100, is the price elasticity of supply now greater than, less than, or the same as it was in part a? c. Suppose a longer time period under consideration means that the quantity supplied at any given price is 20% higher than the figures given in the table. As price increases from $900 to $1,100, is the price elasticity of supply now greater than, less than, or the same as it was in part a? 3. What can you conclude about the price elasticity of demand in each of the following statements? a. “ The pizza delivery business in this town is very competitive. I’ d lose half my customers if I raised the price by as litt le as 10%.” b. “ I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on eBay for a high price. But when I sold the second one, the price dropped by 80%.” c. “My economics professor has chosen to use the Krugman/Wells textbook for this class. I have no Practice Questions and Answers from Lesson I- 7: Elasticity 5 choice but to buy this book.” d. “I always spend a total of exactly $10 per week on coffee.”

4. What do you understand by cross elasticity? 5. Explain the price elasticity of demand. B. Multiple Choice Questions (Mcq’s) 1. The slope of a demand curve depends on a. the units used to measure quantity but not the units used to measure price. b. the units used to measure price and the units used to measure quantity. c. the units used to measure price but not the units used to measure quantity. d. neither the units used to measure price nor the units used to measure quantity. 2. The price elasticity of demand depends on a. the units used to measure price but not the units used to measure quantity. b. the units used to measure price and the units used to measure quantity. c. the units used to measure quantity but not the units used to measure price. d. neither the units used to measure price nor the units used to measure quantity. 3. The price elasticity of demand measures a. the slope of a budget curve. b. how often the price of a good changes.

c. the responsiveness of the quantity demanded to changes in price. d. how sensitive the quantity demanded is to changes in demand? 4. When the quantity of coal supplied is measured in kilograms instead of pounds, the demand for coal becomes a. more elastic. b. neither more nor less elastic. c. less elastic. d. undefined. 5. The price elasticity of demand equals a. the percentage change in the quantity demanded divided by the percentage change in the price. b. the change in the quantity demanded divided by the change in price. c. the percentage change in the price divided by the percentage change in the quantity demanded. d. the change in the price divided by the change in quantity demanded. Answer 1. b 2. d 3. c 4. b 5. a SUGGESTED READINGS

• The form of the inverse linear demand equation is P = a/b - 1/bQ. • Samuelson, W & Marks, S. Managerial Economics 4th ed. p. 37. Wiley 2003 . • Perloff, Jeffrey M. (2008). Microeconomics. pp. 243 –246. • E. F. Schumacher, “ Buddhist Economics,” in Asia: A Handbook, Guy Wint, ed., (London: 1966 ). • E. F. Schumacher, Small is Beautiful (1973), p. 31.

UNIT -5 ELASTICITY OF DEMAND – II STRUCTURE 1. Learning objectives 2. Introduction 3. Total Revenue: 4. Average Revenue 5. Marginal Revenue 6. Average and Marginal Revenue under Imperfect Competition: 7. Average and Marginal Revenue under Perfect Competition: 8. Elasticity of demand 9. Determinants of Elasticity of Demands 10. Summary 11. Keywords 12. Learning activity 13. Unit end questions 14. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the Elasticity of Demand • To understand the methods and types of elasticity of demand

INTRODUCTION Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. Sales Revenue=Sales Price×Number of Units Sold Revenue is also known as sales on the income statement. It is vital for a startup to get positive revenue early. Revenue is money brought into a company by its business activities. Revenue is also known as sales, as in the price- to- sales ratio - an alternative to the price- to- earnings ratio that uses revenue in the denominator. There are different ways to calculate revenue, depending on the accounting method employed. Accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer. It is necessary to check the cash flow statement to assess how efficiently a company collects money owed. Cash accounting, on the other hand, will only count sales as revenue when payment is received. Cash paid to a company is known as a \"receipt\". It is possible to have receipts without revenue. For example, if the customer paid in advance for a service not yet rendered or undelivered goods, this activity leads to a receipt but not revenue. Revenue is known as the top line because it appears first on a company's income statement. Net income, also known as the bottom line, is revenues minus expenses. There is a profit when revenues exceed expenses. To increase profit, and hence earnings per share for its shareholders, a company increases revenues and/or reduces expenses. Investors often consider a company' s revenue and net income separately to determine the health of a business. It is possible for net income to grow while revenues remain stagnant because of cost-cutting. Such a situation does not bode well for a company' s long-term growth. When public companies report their quarterly

earnings, the two figures that receive the most attention are revenues and earnings per share (\"earnings\" being equivalent to net income). Subsequent price movement in stocks generally correlates to whether a company beat or missed analysts' revenue and earnings per share expectations. The term revenue refers to the income obtained by a firm through the sale of goods at different prices. In the words of Dooley, ‘the revenue of a firm is it s sales, receipts or income’. The revenue concepts are concerned with Total Revenue, Average Revenue and Marginal Revenue. TOTAL REVENUE: The income earned by a seller or producer after selling the output is called the total revenue. In fact, total revenue is the multiple of price and output. The behaviour of total revenue depends on the market where the firm produces or sells. “Total revenue is the sum of all sales, receipts or income of a firm.” Dooley Total revenue may be defined as the “ product of planned sales (output) and expected selling price.” Clower and Due “Total revenue at any output is equal to price per unit multiplied by quantity sold.” Stonier and Hague

AVERAGE REVENUE: Average revenue refers to the revenue obtained by the seller by selling the per unit commodity. It is obtained by dividing the total revenue by total output. “The average revenue curve shows that the price of the firm’ s product is the same at each level of output.” Stonier and Hague Price paid by the consumer for the product forms the revenue or income of the seller. The whole income received by the seller from selling a given amount of the product is called total revenue. If a seller sells 15 units of a product at price Rs. 10 per unit and obtains Rs. 150 from this sale, then his total revenue is Rs. 150.

Thus total revenue can be obtained from multiplying the quantity of output sold by the market price of the product (P.Q). On the other hand, average revenue is revenue earned per unit of output. Average revenue can be obtained by dividing the total revenue by the number of units sold. Thus, Average revenue = total revenue/total output sold AR = TR/Q Where AR stands for average revenue, TR for total revenue and Q for total output produced and sold. In our above example, when total revenue Q equal to Rs. 150 is received from selling 15 units of the product, the average revenue will be equal to Rs. 150/15 = Rs. 10 . Rs. 10 is here the revenue earned per unit of output. Now the question is whether average revenue is different from price or these two concepts mean the same thing. If a seller sells various units of a product at the same price, then average revenue would be the same thing as price. But when he sells different units of a given product at different prices, then the average revenue will not be equal to price. An example will clarify this point. Suppose a seller sells two units of a product, both at a price of Rs. 10 per unit. Total revenue of the seller will be Rs. 20 and the average revenue will be 20/2 = Rs. 10. Thus average revenue is here equal to the price of the product. Now suppose that the seller sells the two units of his product, one unit to the consumer A at price Rs. 12 and one unit to the consumer B at price Rs. 10 . His total revenue from the sale of two units of the product will be Rs. 22. Average will be here equal to 22/2 = Rs. 11. Thus in this case when two units of the product are sold at different prices, average revenue is not equal to the prices charged for the product. But in the actual life we find that different units of a product are sold by the seller at the same price in the market (except when he discriminates and charges different prices for different units of the good), average revenue

equals price. Thus in economics we use average revenue and price as synonyms except when we are discussing price discrimination by the seller. Since the buyer’s de- mand curve represents graphically the quantities demanded or purchased by the buyers at various prices of the good, it also, therefore, shows the average revenue at which the various amounts of the good are sold by the seller. This is because the price paid by the buyer is revenue from seller’ s point of view. Hence, average revenue curve of the firm is really the same thing as the demand curve of the consumers. MARGINAL REVENUE: Marginal revenue is the net revenue obtained by selling an additional unit of the commodity. “ Marginal revenue is the change in total revenue which results from the sale of one more or one less unit of output.” Ferguson. Thus, marginal revenue is the addition made to the total revenue by selling one more unit of the good. In algebraic terms, marginal revenue is the net addition to the total revenue by selling n units of a commodity instead of n – 1. Therefore, A. Koutsoyiannis, “ The marginal revenue is the change in total revenue resulting from selling an additional unit of the commodity.” If total revenue from (n) units is 110 and from (n – 1) units is 100. in that case

MRnth = TRn – TRn _ 1 = 100 – 100 MRnth = 10 MR in mathematical terms is the ratio of change in total revenue to change in output MR = ∆TR/ ∆q or dR/dq = MR Total Revenue, Average Revenue and Marginal Revenue: The relation of total revenue, average revenue and marginal revenue can be explained with the help of table and fig. Table Representation: The relationship between TR, AR and MR can be expressed with the help of a table 1. From the table 1 we can draw the idea that as the price falls from Rs. 10 to Re. 1, the output sold increases from 1 to 10 . Total revenue increases from 10 to 30, at 5 units. However, at 6th unit it becomes constant and ultimately starts falling at next unit i. e. 7th. In the same way, when AR falls, MR falls more and becomes zero at 6th unit and then negative. Therefore, it is clear that when AR falls, MR also falls more than that of AR: TR increases initially at a diminishing rate, it reaches maximum and then starts falling.

The formula to calculate TR, AR and MR is as under: TR = P x q Or TR = MR 1 + MR 2 + MR 3 + MR 3 +….. MR„ TR AR = TR/q MR = TRn – TRn _ x In fig. 1 three concepts of revenue have been explained. The units of output have been shown on horizontal axis while revenue on vertical axis. Here TR, AR, MR are total revenue, average revenue and marginal revenue curves respectively. In figure 1 (A), a total revenue curve is sloping upward from the origin to point K. From point K to K’ total revenue is constant. But at point K’ total revenue is maximum and begins to fall. It means even by selling more units total revenue is falling. In such a situation, marginal revenue becomes negative. Similarly, in the figure 1 (B) average revenue curves are sloping downward. It means average revenue falls as more and more units are sold. In fig. 1 (B) MR is the marginal revenue curve which slopes downward. It signifies the fact that MR with the sale of every additional unit tends to diminish. Moreover, it is also clear from the fig. that when both AR and MR are falling, MR is less than AR. MR can be zero, positive or negative but AR is always positive.

On the other hand, marginal revenue is the net revenue earned by selling an additional unit of the product. In other words, marginal revenue is the addition made to the total revenue by selling one more unit of a commodity. Putting it in algebraic expression, marginal revenue is the addition made to total revenue by selling n units of a product instead of n – 1 where n is any given number. If a producer sells 10 units of a product at price Rs. 15 per unit, he will get Rs. 150 as the total revenue. If he now increases his sales of the product by one unit and sells 11 units, suppose the price falls to Rs. 14 per unit. He will, therefore, obtain total revenue of Rs. 154 from the sale of 11 units of the good. This means that 11 th unit of output has added Rs. 4 to the total revenue. Hence Rs. 4 is here the marginal revenue. Total revenue when 10 units are sold at price of Rs. 15 = 10 x 15 =Rs. 150 Total revenue when 11 units are sold at price of Rs. 14 = 11 x 14 = Rs. 154 Marginal revenue = 154- 150 = Rs. 4 The word net in the first definition of marginal revenue given above is worth noting. The full understanding of the word ‘ net’ in the definition will reveal why the marginal revenue is not equal to the price. The question is, taking our above numerical example, why the marginal revenue due to the 11th unit is not equal to the price of Rs. 14 at which the 11th unit is sold. The answer

is that the 10 units which were sold at the price of Rs. 15 before will now all have to be sold at the reduced price of Rs. 14 per unit. This will mean the loss of one rupee on each of the previous 10 units and total loss on the previous 10 units due to price fall will be equal to Rs. 10. The loss in revenue incurred on the previous units occurs because the sale of additional 11th unit reduces the price to Rs. 14 for all. Thus in order to find out the net addition made to the total revenue by the 11th unit, the loss in revenue (Rs. 10) on previous units should be deducted from the price of Rs. 14 at which the 11th unit is sold along with others. The marginal revenue in this case will, therefore, be equal to Rs. 14 – 10 = 4. Marginal revenue is thus less than the price at which the additional unit is sold. It is clear from above that marginal revenue can either be found directly by taking out the difference between total revenue before and after selling the additional unit, or it can be obtained by subtracting the loss in revenue on previous units due to the fall in price from the price at which the additional unit is sold. Therefore, marginal revenue = difference in total revenue in increasing sales from n – 1 units to n units. = price of the additional unit minus loss in revenue on previ- ous units resulting from price reduction. It follows from above that when the price falls as additional unit is sold, marginal revenue is less than the price. But when the price remains the same as additional unit is sold, as under perfect competition, the marginal revenue will be equal to average revenue, since in this case there is no loss incurred on the previous units due to the fall in price. The relationship between average revenue and marginal revenue is the same as between any other average and marginal values. When average revenue falls marginal revenue is less than the average revenue. When average