Price elasticity of demand and types of elasticity with example

1. 1
Managerial Economics
Group members
Saima (040)
Arslan (31)
Hassan Raza (40)
Mehnaz (020)

2. 2
• Elasticity
It shows the degree of responsiveness of the change in the one variable
due to the change in the quantity of the other variable.
Elasticity = Percentage change in the one variable
Percentage change in the other variable
It is simply a way of quantifying cause of and effect relationship. The
concept of elasticity can be used in demand and supply.

3. 3
There are five types of price elasticity ofThere are five types of price elasticity of
demand:demand:
• Unit elasticityUnit elasticity
• elasticityelasticity
• inelasticinelastic
• Perfectly inelasticPerfectly inelastic
• Perfectly elasticPerfectly elastic

4. 4
Price elasticity can be measured with thePrice elasticity can be measured with the
following equation-following equation-
Price elasticity of demand =
% change in price
% change in quantity

5. 5
What is an example of unitary elasticity?
Ice cream and beef
Unitary Elastic Demand
Demand is said to be price unitary elastic if any proportionate
change in the price brings a equal proportionate change in the
quantity demanded.
In this case the value of PED is always equal to 1.

6. 6
Example
Price = 4, 3 & Quantity Demanded= 120, 150
When price is 4 quantity demanded is 120. When
price decreases from 4 to 3 then quantity demanded
is also changed but proportionately. Then the
quantity demanded is 150.

7. 7
0
D''
120 Quantity demand150
3
4
ED = –1
A Unit Elastic Demand Curve
Price
Figure 1.1 Unit Elasticity

8. 8
What is an example of elastic?
Bananas
Elastic Demand
Demand is said to be price elastic if small
proportionate change in the price brings a larger
proportionate change in the quantity demanded.

9. 9
Example
Price = 4,3Quantity Demanded=120,160
When price is 4, quantity demanded is 120. When price
decreases from 4 to 3 then quantity demanded is
increased at a greater rate from proportionate change that
is 120 to 160.The change is more than proportionate
change.

10. 10
0
D
Quantity demand160120
3
ED > 1
A Elastic Demand Curve
Price
Figure 1.2 Elasticity
4

11. 11
What is an example of perfectly inelasticity?
Gasoline
Inelastic Demand
Demand is said to be price inelastic if larger proportionate
change in the price brings a small proportionate change in
the quantity demanded.
•In this case the value of PED is always less than 1

12. 12
When price is 4, quantity demanded is 120.When price is 4, quantity demanded is 120.
When price decreases from 4 to 3 thenWhen price decreases from 4 to 3 then
quantity demanded is increased at a lower ratequantity demanded is increased at a lower rate
fromfrom proportionate change that is 120 to 140.

13. 13
0
D
Quantity demand
4
3
120 140
A Inelastic Demand Curve
ED < 1
Price
Figure 1.3 Inelastic

14. 14
i.e. Insulin or Medicines
What is an example of perfectly elasticity?
Perfectly Inelastic Demand
Demand is said to be perfectly inelastic if any
proportionate change in the price brings a no change in
the quantity demanded. We can say that given quantity
can be demanded at any price in case of perfectly
inelastic demanded.
• In this case the value of PED is always zero

15. 15
Example
Price = 4, 3 & Quantity Demanded =120, 120
When price is 4, quantity demanded is 120. When price
decreases from 4 to 3 then quantity demanded are still 120.
There is no change in quantity demanded...

16. 16
Quantity0
D'
ED = 0
120
3
4
Price
A Perfectly Inelastic Demand Curve
Figure 1.4 Perfectly Inelastic

17. 17
"Coal"
Perfectly Elastic Demand
Demand is said to be perfectly elastic if any small
proportionate change in the price brings a infinite
change in the quantity demanded. We can say that at
given price any quantity can be demanded in case of
perfectly elastic demanded.
• In this case the value of PED is infinity.
What is an example of perfectly elasticity?

18. 18
Perfectly elastic(Ed= ∞)
The prices of a commodity is totally unresponsive to
changes in quantity demanded that means there is no
change in price when quantity demand changes.
Price = 4, 4 & Quantity Demanded = 120, 150
When price is 4tk, quantity demanded is 120. When no
change in price brings a change in quantity demanded
from 120 to 150. There is no change in price of a
commodity...

19. 19
A Perfectly Elastic Demand Curve
0
D
ED =
4
Quantity120 150
Price
Figure 1.4 Perfectly Elastic

20. 20
Any Question

21. 21