INTRODUCTION TO ECONOMICS

Prof. Madhu Bharti

 (Other things are held
constant)

(Demand is inversely related

with price). If prices of
petrol/diesel would rise from Rs.
50/ liter to Rs. 100/liter,
consumers will look for another
options like public transport.
reasons
When price falls from P to P2 demand rises from
M to M2
Price Elasticity of Demand
 Measures how much the quantity demanded of a good
changes when its price changes
 % change in quantity demanded / % change in price
 Elastic demand- quantity demanded responds to price
changes (substitute goods)
 Inelastic – quantity doesn’t respond to price (for eg. Basic
goods)
Elasticity and Revenue
 When demand is price elastic, price decrease leads to
increase in revenue
 When demand is price inelastic price decrease may not
increase the revenue
 Air travel: elastic/ inelastic?
Sq.mt Sq.mt
. .
Thank You