Topic: - Price elasticity of Demand
Class: - XII
Concept Detail:Elasticity of demand-: It refers to change in Quantity demanded due to change
in price commodity of price, Income of consumer etc.
Types of Elasticity of demand-:
1) Price elasticity of demand
2) Income elasticity of demand
3) Cross price effect
Price elasticity of demand-: It is defined as a percentage in change quantity
demanded in response to percentage change in price.
ED= % of change in quality demanded / % change in price
Measurment Price elasticity of demand1) Proportionate or Percentage method
2) Total Expenditure method
3) Geometric method
1).Percentage method-: In this method elasticity of demand is measure by
percentage change in quantity demanded in response to percentage change in
price.
Ed=(-) Change in demand / Initial demand
Change in price /Initial price
= ΔQ/Q
ΔP/P
ED=(-)P*ΔQ
Q ΔP
ΔQ=Q1-Q
ΔP=P1-P
2).Total Expenditure method-: It estimate the degree of price of elasticity
demand depending on the change in total Expenditure with the change in own
price commodity.
.Schedule
Schedule
price
A
2
Quantity
demanded
4
B
1
2
8
4
C
1
2
10
3
1
4
Total
Change in
expenditure expenditure
8
No change
in total
expenditure
8
8
T.E is
increase
10
6
T.E is
decrease
4
Ed
Ed=1
Ed>1
Ed<1
a) Unitary elastic demand-: If rise or fall in price cause no change in total
expenditure it is called unitary elastic demand.
b) More than unitary elastic demand-: If fall in price cause increase in total
expenditure and increase in price cause decrease in total expenditure.
c) Less than unitary elastic demand-: It refers to fall in price cause decrease
in total expenditure or increase in price cause increase in expenditure.
3).Gemetric method/Point method-:In this method measure price elasticity
demand at different point on the demand curve it is called point method of
measurity of price elasticity demand.
D1 /R=upper segment
D/R=lower segment
Ed=Lower segment
Upper segment
Ed= Rd
Rd1
Degree of price Elasticity of demand1)Perfectly elastic demand-: It refers to situation when demand is infinite at
prevalling price it is situation where slitest rise in price cause demand of a
commdityto fall zero.
2)Perfectly inelastic demand-:It refers to a situation when change in price
cause no change in quantity demanded even a slitest change in price it does
not cause change in quantity demand.
3)Unitary elastic demand-:Ed=1 If rise or fall in price cause no change in total
expenditure it is called unitary elastic demand.
4)More than unitary demand-:Ed>1 If fall in price cause increase in total
expenditure and increase in price cause decrease in total expenditure.
5)Less than unitary demand-:Ed<1 It refers to fall in price cause decrease in
total expenditureor increase in price cause increase in expenditure.
Unitory elasticity of demand at all points on the Demand curveElasticity of demandhappens to be equal to unity at all points of demand curve
when demand curve is rectangular hyperbola.
Factors affecting price Elasticity of demand1).Nature of commodity: Ordinarily, necessaries like
salt,kerosene,oil,textbooks etc.have less than unitary elastic(inelastic)
demand.
2).Availabilty of substitutes: Demand for goods which have close substitute
(like, tea and coffee, being close substitute of each other)
Is relatively more elastic.
3).Income level of the buyer: Elasticity of demand for a good also depends on
the income level of its buyer. If the buyers of a good are high end consumers
they will not be bothered by a rise in its price.
4).Price level: Elasticity of demand also depends on the level of price of the
concerned commodity. Elasticity of demand will be high at higher level of the
price of the commodity and low at the lower level of the price.
5).Time period: Demand is inelastic in short period but elastic in long period .It
is because, in the long run, a consumer can change his consumption habits
more conveniently than in the short period.
Activity:- Diagrams,ppts
Instant Diagnosis Questions:1. Define Price Elasticity of Demand.
2. Define perfectly elastic Demand.
3. Define perfectly inelastic Demand.
4. Define perfectly inelastic Demand.
5. Give any five factors determine price elasticity of demand.
6. Give the formula to find out elasticity of demand by percentage method.
7. State the different degrees of elasticity of demand.
8. When is elasticity of demand called unitary?
Formative Assessment:-
1. How is the price elasticity of demand for a commodity affected by the
number of its substitutes?
2. Explain any two factors that affect price elasticity of demand?
3. Explain the geometric method of measuring price elasticity of demand.
4. When is the demand for a commodity said to be elastic?
5. Draw a straight line demand curve and show on it a point at which
(i) Price elasticity of demand>1
(ii) Price elasticity of demand>1
(iii) Price elasticity of demand=1
6. When is the demand for a good said to be perfectly inelastic?
7. When price of a commodity falls by Rs.1per unit, its quantity demanded
rises by 3units .Its price elasticity of demand is (-2). Calculate its quantity
demanded if the price before the change was Rs.10per unit.
8. When price of a good is Rs.13 per unit, the consumer buys 11units of that
good. When price rises to Rs.15 per unit, the consumer continues to buy
11units.Calculate price elasticity of demand.
9. Give the formula to find out elasticity of demand by percentage method.
10. The demand for a commodity does not change with the increase in its price
from Rs.5 toRs.10.What is its elasticity of demand?
11. Show the different degrees of elasticity of demand with the help of a
diagram.
12. How does the level of price of a good affect the price elasticity of demand?
Explain.
Level Wise Assessment:-
Level-1
1. Define Price Elasticity of Demand.
2. Define perfectly elastic Demand
3. Explain any two factors that affect price elasticity of demand?
4. Explain the geometric method of measuring price elasticity of demand.
5. When is the demand for a commodity said to be elastic?
Level-2
1. Explain any five factors determine price elasticity of demand.
2. What do you understand by price elasticity of demand? How is it measured?
3. Define price elasticity of demand for a commodity .What would be the
shape of a demand curve of a commodity when its price elasticity of demand
is:
(i) Zero?
(ii) Infinite?
4. A consumer buys 10 units of a good at a price of Rs.6per unit. Price elasticity
of demand is (-1).At what price will he buy 12 units? Use expenditure approach
of price elasticity of demand to answer this question.
Level-3
1. Draw a downward sloping straight line demand curve touching both the axes.
Mark the price elasticity at different points of this demand curve. Also explain
briefly any three factors affecting price elasticity of demand.
2. Explain by giving examples, how do the following determine price elasticity of
demand?
(i) Nature of the good, and
(ii) Availability of substitutes
3.”Flatter the curve, greater the elasticity of demand. “Comment.
Project:4. Draw a straight line demand curve .Choose any five points on it and compare
the point elasticity’s at those five points.