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    Name: Prithhiraj Biswas, Roll No: 35, UG First Semester Topic: 1.point Elasticity

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    Prithhiraj Biswas
    This document discusses two methods for calculating elasticity of demand - arc elasticity and point elasticity. Arc elasticity is used for nonlinear demand curves and calculates elasticity between two points on the curve using their average price and quantity. Point elasticity measures elasticity at a single point on a linear demand curve. It can be calculated geometrically by using the slope of the tangent line or mathematically by taking the limit of the arc elasticity formula as the two points converge. The document provides an example of calculating point elasticity at a point M when price is equal to a constant k using the linear demand function Q=a-bP.

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    Name: Prithhiraj Biswas, Roll No: 35, UG First Semester Topic: 1.point Elasticity

    Uploaded by

    Prithhiraj Biswas
    25 views15 pages
    This document discusses two methods for calculating elasticity of demand - arc elasticity and point elasticity. Arc elasticity is used for nonlinear demand curves and calculates elasticity between two points on the curve using their average price and quantity. Point elasticity measures elasticity at a single point on a linear demand curve. It can be calculated geometrically by using the slope of the tangent line or mathematically by taking the limit of the arc elasticity formula as the two points converge. The document provides an example of calculating point elasticity at a point M when price is equal to a constant k using the linear demand function Q=a-bP.

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    Presi Elasticity

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    This document discusses two methods for calculating elasticity of demand - arc elasticity and point elasticity. Arc elasticity is used for nonlinear demand curves and calculates elasticity between two points on the curve using their average price and quantity. Point elasticity measures elasticity at a single point on a linear demand curve. It can be calculated geometrically by using the slope of the tangent line or mathematically by taking the limit of the arc elasticity formula as the two points converge. The document provides an example of calculating point elasticity at a point M when price is equal to a constant k using the linear demand function Q=a-bP.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    25 views15 pages

    Name: Prithhiraj Biswas, Roll No: 35, UG First Semester Topic: 1.point Elasticity

    Uploaded by

    Prithhiraj Biswas
    This document discusses two methods for calculating elasticity of demand - arc elasticity and point elasticity. Arc elasticity is used for nonlinear demand curves and calculates elasticity between two points on the curve using their average price and quantity. Point elasticity measures elasticity at a single point on a linear demand curve. It can be calculated geometrically by using the slope of the tangent line or mathematically by taking the limit of the arc elasticity formula as the two points converge. The document provides an example of calculating point elasticity at a point M when price is equal to a constant k using the linear demand function Q=a-bP.

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    Name: Prithhiraj Biswas,

    Roll No: 35, UG First Semester


    Topic: 1.Point Elasticity
    2. Arc Elasticity
    ELASTICITY OF DEMAND
    As we all know, a good's price elasticity of demand is
    defined as a measure of the sensitivity(responsiveness)
    of quantity demanded due to change in price.
    There are different types of elasticity of demand. i.e.
    price elasticity, income elasticity, cross elasticity of
    demand etc. and there are also different methods for
    calculating elasticity.
    The price elasticity of the demand curve shows how
    much of it’s quantity demanded changes when it’s
    price changes by 1 unit.
    The general formula for measuring elasticity is the
    ratio of total percentage(%) change in quantity to total
    percentage(%) change in price.
    Here we will mainly consider the price elasticity of
    demand and two methods to calculate it. i.e.-

    1. Arc elasticity of demand.

    2. Point elasticity of demand.


    ARC ELASTICITY OF DEMAND
    The arc elasticity of demand is generally used when
    the demand function is non-linear.
    In this method, we find the elasticity between two
    points on the demand curve.
    In fig.-1, there are two points, A
    and B. we’ll find elasticity between Fig.-1
    those points through arc elasticity
    method.
    Now, from Fig.-1, if we take the very two points,
    A and B, we’ll find that each point represents Fig.-1
    different combinations of price and quantity.

    (P1,Q1)
    In order to denote the elasticity, we
    need the primary price and quantity
    but, answers will be changed if we (P2,Q2)
    take a particular point. That’s why,
    we’ll take the average of the two
    DD
    points in order to calculate it’s
    O
    elasticity.
    Now, the general formula of elasticity states:
    Here, the percentage change in Price is --

    [Where, (P1+P2/2) is the average]

    And, the percentage change in Quantity is --

    [Where, (Q2+Q1/2) is the average]

    Now, applying the general formula-

    (Ep)
    Hence, (1) is the formula to determine arc elasticity of any
    non-linear demand function.
    Point Elasticity of Demand
    Point elasticity of a demand curve is measured along a
    linear demand curve which has a constant slope.
    Although, the slope is constant, the demand elasticity
    dramatically changes depending on the point which is
    taken into consideration.
    Fig.-1

    A downward sloping linear


    demand curve has different
    elasticities in different
    points.(see fig.-1)
    Calculation of Point Elasticity of Demand
    (Geometrically)

    OP
    Deriving Point Elasticity of Demand
    (Mathematically)
    We will use the formula of arc elasticity in order to
    derive point elasticity in a downward sloping linear
    demand curve. But, we’ll take one particular point on
    the demand curve. Now, our previously derived
    formula(1) is----

    Here, we’re taking only one point say: M=(P1,Q1) so we can simply
    write P1 and Q1 instead of (P1+P2)/2 and (Q1+Q2)/2 respectively.
    We’re taking the limit as, P 0. Now, calculating
    the point elasticity, we get:
    Example:-
    Q.) The demand function of a linear demand curve is
    given as Q=a-bP, determine the point elasticity of
    demand at point M when price is equal to k.[k is a
    constant]

    Ans:- The demand function is given as,


    Q=a-bP…….(1)
    when, at M, P=k, Q=a-b.(k) [putting value of
    =a-bk………(2) P=k]
    Now, differentiating both sides wrt ‘p’ in equation (1)----
    dQ/dP=0-b.(1)
    =-b……(3)
    Now,
    the point elasticity of demand, at point M,
    (Ep)=(-)(dQ/dP)*(P1/Q1)
    =(-)(-b).(k/a-bk)[putting, P1=k, and
    =(-)(bk/bk-a) (2) and (3)]
    Fig.-1

    It is illustrated in
    the fig.-1 beside:
    Thank You

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