Price elasticity of demand


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Price elasticity of demand

  1. 1. SEMINAR PRESENTATIONTopic : Price Elasticity Of Demand Name : Raghav Kapahi Class : B.Com. ( Hons.) Roll No. : 29-HBCM-11 E-Mail Id : 1
  2. 2. LAW OF DEMAND states that there is a inverse relation between PRICE of product and its DEMAND , i.e. when price of a product rises its demand falls & vice versa .Ques. When price rises, what happens to demand? Ans : Demand falls. BUT ..! BUT..! BUT..!The next question which arises is : How much does demand falls. And answer to this question is :
  4. 4. PRICE ELASTICITY OF DEMAND (edp) : “Price Elasticity of Demand is the measure of degree of change in the amount demanded of commodity in response to a given change in price of the commodity.” “Elasticity of Demand for the commodity is the rate as which quantity bought changes as the price changes.” ~Cairncross “Elasticity of Demand measures the responsiveness of demand to changes in price.” ~Boulding Price Elasticity of Demand is the percentage change in the quantity demanded divided by percentage change in the price. % change in Demand edp = % change in Price 4
  5. 5. • Law of Demand indicates only the direction of change in quantitydemanded in response to change in price,But Elasticity of Demand states that how much or to what extent thequantity demanded will change in response to change in its price.  If price rises by 10% - what happens to demand?  We know demand will fall  By more than 10%?  By less than 10%?  Elasticity measures the extent to which demand will change. And this, gives us five different Degrees Of Price Elasticity Of Demand:
  6. 6. DEGREES of PRICE ELASTICITY of DEMAND : 1. Unitary elastic demand. (edp = 1 ) 2. Perfectly elastic demand. (edp = ∞ ) 3. Perfectly inelastic demand. (edp = 0 ) 4. Relatively elastic demand. (edp > 1 ) 5. Relatively inelastic demand. (edp < 1 ) 6
  7. 7. 1. Unitary Elastic Demand : (edp = 1) When degree of change in demand equals to the changein price. y Under unitary elasticity, demand moves with Unitary elastic the price. y2 In this case change in demand Price is equal to change in price. y1 So the demand curve in this case is a straight line which moves downwardly from left to x2 x X1 right. Quantity demanded 7
  8. 8. 2. PERFECTLY ELASTIC DEMAND : (edp = ∞) When there is infinitely large change in demand withslight change in price. y Here, with a slightly change in price the demand changes infinitely. Price Perfectly elastic And the demand curve in case of perfectly elastic demand is horizontal to x-axis. x Quantity demanded 8
  9. 9. 3.PERFECTLY INELASTIC DEMAND : (edp = 0) When there is no effect on demand with the change inprice. y Under perfectly inelastic demand, whatever the price may be the amt. of Perfectly quantity demanded Price inelastic remains same . It applies in case of necessary goods like salt, medicines etc. x Quantity demanded Perfectly inelastic demand, gives a vertical straight line. 9
  10. 10. 4. RELATIVELY ELASTIC DEMAND : (edp > 1) When degree of change in demand is more than degreeof change in price. y Relatively Elastic demand, states that the demand changes more than the price. Relatively It mostly happens in case of y2 Elastic Price comfort goods like fruits, TV etc. y1 Demand curves in case of Elastic Demand are gently sloped. x2 x X1 Quantity demanded
  11. 11. 5. RELATIVELY INELASTIC DEMAND : (edp < 1)When degree of change in demand is less than the degree ofchange in price. y And in the end, relatively Inelastic Demand, demand Relatively changes less than the change in y1 Inelastic price. Price It is possible in case of normal goods which we use daily. y2 Demand curves in case of inelastic demand are more steeper. X1 x2 x Quantity demanded 11
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