ELASTICITY OF

DEMAND
STUDENTS NAME: NEHA CHAKRABORTY (112)
KHUSHI PRASAD (111)
HAQEQA TAUSIF(109)
ISHITA ROHATGI(093)
SUPRAPTI GUPTA(104)
WHAT IS ELASTICITY OF DEMAND

 Elasticity of demands refers to the percentage change in demand

for a commodity with respect to percentage change in any of the
factor affecting demand for that commodity.

 The concept of elasticity was developed by prof marshal in his book

'principle of economics.'

 Elasticity of Demand(Ed)= percentage change in quantity demand

 Percentage change in price
DIMENSION OF ELASTICITY OF
DEMAND

I ncome Elasticity of
Demand :I t refers to the
Cross Elasticity of Demand: percentage change in
Price elasticity of demand I t refers to the percentage
:it refers to the amount commodity of a good w ith
in demand for a respect to percentage
when the percentage of
commodity w ith respect to change in the income of
demand of a commodity the percentage change in
change (increase or the consumer for example
THERE ARE MAINLY THREE the price of the good the price and other factor
decrease )due to
DIMENSIONS OF DEMAND (substitute or of a commodity (say
percentage change in
complimentary good).for pressure cooker) may be
price. Ex- demand for example tea and coffee
mango may increase due same but the consumer's
are substitute goods and income may decrease or
to fall in its price at a
petrol and car are increase and its demand
particular point in time complementary. can increase or decrease
referring to the
affordability.
Price Elasticity of Demand

 It means the degree if responsiveness of demand for a commodity

with respect to percentage change in its price.
 It shows the quantitative change in the commodity of demand with
respect to price change.
 The greater the numeric value of Elasticity of Demand the greater
it shows the percentage of price change has on demand.
 Demand for certain goods increase or decrease highly due to a
small quantity of price change while other goods show little reaction
to change in demand due to percentage change in price .For
example:-if demand for car decrease the demand increases a lot
while when the price of safetypin decreases it effects the demand
little.
Methods for measuring Price
elasticity of demand
Percentage Method Proportionate Method
 According to this method, elasticity is measured as the ratio  According to this the percentage method is converted
of the percentage change in the quantity demanded to into this method.
the percentage change in price.  Percentage change in quantity demanded= Q/Qx100
 Elasticity of demand(E d)  Percentage change in price= P / Px100

 =Percentage change in quantity demanded /  Hence Ed = Q/Q x P/ P

Percentage change in price  Where,
 W here percentage change in quantity demanded  Q=initial quantity of demand
=change in quantity demand ( q) / change in
 Q1=new quantity of demand
price( p )x100%
 Q=change in quantity of demand
 W here P=original price
 P=initial price
 P1=New price
 P1=new price
 Hence ( P)=P1-P
 P=change in price
 W here Q=original quantity demanded

 Q1=New Quantity Demanded

 Hence( Q)= Q1-Q

Various Degrees of Elasticity of
Demand
 Perfectly elastic demand Ed=
This Photo by

Ed=infinite and demand curve is

Unknown
author is
licensed
under CC BY-
NC.

horizental to the price(x axis)

Suppose,
PRICE(IN rs) DEMAND(in units)
 Suppose
30 100
Here the price of the
quantity does not show any
difference yet the demand
30 200 rises in a firm way
30 300
30 400
Perfectly Inelastic Demand (Ed=0)

 When there is no change in demand with the

 Change in price
 Suppose,

Price(in $) Demand
5 50
10 100 .
15 150
20  200 In the following table
there is
25 250
no
change in quantity demand
with
change in price
Highly Elastic Demand(Ed>1)

 When percentage change in

quantity demand is more than percentage
change in price.
 For example: ac, washing machine
generally has such properties.
Price( Quantity demand
8 4
6 8 Yit shows the change
in quantity demand with
4 12 regards to price change
2 16
 Less Elastic Demand(Ed < 1)

 When percentage change in quantity demand is

less than percentage change in price.

Price(in $) demand
20 100
10 120

When price changes significantly

the percentage change in
quantity demand is slight
 Unitary Elastic Demand(Ed=1)

 When percentage change in demand

is equal to percentage
change in quantity.
Price(in $) Demand
 20 100

10 150
When the quantity
demand and change
in price gives the result =1
Factors affecting Price Elasticity of
Demand
 Availability of substitutes: With large number of substitute the demand
will be more elastic , for example if price of tea increase customers will
buy coffee .
 Nature of the commodity: when the commodity is a necessity that
demand is inelastic whereas when it is a luxury or comfort it seems to
be elastic. For example, medicines are necessity and cars are luxury.
 Income level: Elasticity of demand for any commodity in higher income
groups as compared to lower income groups. For example the rise of
price in vegetables will concern the lower income people as compared
to the higher ones.
 Time Period: Price Elasticity is always related to time period. It varies
directly with the time period as it is assumed that demand is inelastic in
a shorter time period but becomes elastic in a longer time period. For
example, if someone consumes a particular product such as
shampoo it's hard to change it is a short period of time but it could be
change in a longer period of time.