PRICE ELASTICITY OF DEMAND

PRESENTATION:
 ELASTICITY OF DEMAND

• The Elasticity of Demand is a measure of

change in the quantity demanded in response
to the change in the price of the commodity.
Simply, the effect of a change of price on the
quantity demanded is called as the elasticity
of demand.
 PRICE ELASTICITY
The Price Elasticity of Demand (commonly known as just
price elasticity) measures the rate of response of quantity
demanded due to a price change.
FORMULA:
% change in Qd
% change in Price
So Lets Suppose:
Price of sugar has increased by 10% and demand has
decreased by 3%. So what is the price Elasticity?
As
Qd of sugar : 3%
Price of sugar : 10%
= 3%
10%

= 0.3 (Less elastic & a necessity)

= So price elasticity of demand is 0.3.
And we ignore negative values and write the absolute
values always
 CATEGORIES OF PRICE ELASTICITY OF
DEMAND
• Perfectly elastic demand Ed = ∞ Horizontal Curve

• Perfectly inelastic demand Ed = 0 Vertical Curve

• Unitary elastic demand Ed = 1 Rectangular Hyperbole

• Relatively elastic demand Ed > 1 Flatter Curve

• Relatively inelastic demand Ed < 1 Steeper Curve

 Perfectly Elastic demand
There is no change in the price of commodity but
quantity demanded changes.

y
P
R
I Q2 Q Q1
P
C
E

O Q2 Q Q1 x
QUANTITY
 Perfectly Inelastic demand
There is no change in the quantity demand, whatever
the change is in price

y
P
R P1 P1
I
P P
C
P2 P2
E

o
Q x
QUANTITY
 Unit Elasticity of Demand
If percentage change in quantity demanded is equal to
percentage change in price of commodity

D
P

P1
D

O Q Q1 x
 Relatively Elastic Demand
If percentage change in quantity demanded is greater than
percentage in price of commodity

y
D
P P
R
I P1
C D
E

o Q Q1 x

QUANTITY
 Relatively Inelastic Demand
If percentage change in quantity demand is less than
percentage change in the price of the commodity

y D
P
P
R
I
P1
C
D
E
O
Q Q1 x

QUANTITY
 Nature of goods
This is divided into two parts

Luxuries goods Necessaries goods

Luxuries goods have more elastic demand and on the other

hand necessaries goods have less elastic demand