2.
Meaning Elasticity of demand is defined as the percent change in quantity demanded to percent change in the price- MARSHALL Price elasticity of demand measures the degree of responsiveness of quantity demanded of a good to a change in price- BOULDING The formula for the Price Elasticity of Demand (PEoD) is:PEoD = (% Change in Quantity Demanded)/(% Change in Price)
3.
Ed = Percentage Change in Quantity Demanded Percentage Change in Price = Change in Quantity Demanded ÷ Change in Price Quantity Demanded Initially Initial Price = ∆Qd x P ∆P Qd where ∆Qd= Change in Quantity Demanded ∆P = Change in Price
4.
Elasticity over a Segment of Demand Curve Price D R P0 S P1 D 0 Quantity Demanded Q0 Q1
5.
Also called arc elasticity- Price Elasticity over a Segment of Demand Curve Q1 – Q0 (P0 + P1)/2 X ep = P1 – P0 (Q0 + Q1)/2 P0 + P1 Q1 – Q0 = X Q0 + Q1 P1 – P0 P0 + P1 Q = X P Q0 + Q1
Measurement of point elasticity is same as the price elasticity of demand in a limiting sense
7.
Here changes in quantity demanded and price are infinitesimally small
8.
Point elasticity of demand is different at different point on the demand curve
Elasticity at a Point on the Demand Curve Price D Draw a tangent AB on the demand curve at point R Slope of AB = OB/OA Ep = (OB/OA)* (RN/RM) As triangle AOB, AMR and NRB are similar (OB/OA)= (NB/RN) Ep = (NB/RN)*(RN/RM) = NB/RM Again NB/RM = RB/AR Ep = RB/AR Ep = Lower Segment Upper Segment Lower Segment ep = Upper Segment A S R M D B O N Quantity Demanded
10.
Price Elasticity, Total Revenue and Total Expenditure
Total expenditure by the consumer over any given period of time is the number of units of a product purchased over a period Q, multiplied by the price of the product , P
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