The document discusses price elasticity of demand, which is the relationship between a change in the quantity demanded of a good and a change in its price. It defines five types of price elasticity - perfectly inelastic, relatively inelastic, unitary, relatively elastic, and perfectly elastic - based on how much quantity demanded changes relative to a price change. The document also covers uses of price elasticity in business decision making, such as pricing, and its importance, such as in international trade and government policy formulation.

2. PRICE ELASTICITY OF DEMAND
Group Members:
> Anjit Timsena
> Vijay Shakya
> Suraj Deo
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Table of Contents
1. Demand
2. Price Elasticity of Demand
3. Human behaviour when price has been changed
4. Types of Price Elasticity of Demand
5. Uses of Price Elasticity of Demand
6. Importance of Price Elasticity of Demand

4. DEMAND:
Word Demand means combination of Desire, ability
to pay & willingness to pay.
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Desire to express a wish to obtain; ask for; request
Ability power or capacity to do or act mentally, legally, financially, etc.
willingness done, given, used, etc., with cheerful readiness.

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Price Elasticity of Demand
Price elasticity is the relationship between a change in the quantity demanded
of a particular good and a change in its price.
“ If I lower the price of my product, how much more will I sell?”
“If I raise the price of one good, how will that affect sales of this other good?”
Quantity(q)
q+ q Demand curve
q
q
p
X
0 p p + p
Price(P)
MATHEMATICALLY,
q P1
EP= q1 * p
where p= p2 – p1
p1 = initial price

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Price Elasticity of Demand
Price elasticity is the relationship between a change in the quantity demanded
of a particular good and a change in its price.
“ If I lower the price of my product, how much more will I sell?”
“If I raise the price of one good, how will that affect sales of this other good?”
Quantity(q)
q+ q Demand curve
q
q
p
X
0 p p + p
Price(P)
MATHEMATICALLY,
q P1
EP= q1 * p
where p= p2 – p1
p1 = initial price

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TYPES OF PRICE ELASTICITY OF DEMAND
 Perfectly Inelastic Demand (ep=0)
 Relatively Inelastic Demand (ep<0)
 Unitary Elastic Demand (ep=1)
 Relatively Elastic Demand (ep>1)
 Perfectly Elastic Demand (ep=∞)

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If there is no response in the quantity demanded due to the change in
price, it is said to be a perfectly inelastic demand. It may be applicable
for every low priced items.
Y D1
P2 q2
p q
P1 q1
X
0 Q
 Perfectly Inelastic Demand (ep=0)
Price
Quantity Demanded
P = p1 = p2
q = q1 = q2

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 Relatively Inelastic Demand (ep<0)
If the percentage change in the quantity demanded is less than
percentage change in price, It is said to be a relatively inelastic
demand. It is related with the daily consumption goods
Y
D e < 1
p1
p2
D
q1 q 2
Quantity Demanded

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 Unitary Elastic Demand (ep=1)
If the percentage change in quantity demanded is equal is equal to the
percentage change in price, It is said to be a unitary elastic demand.

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If the percentage change in the quantity demanded is greater than the
percentage change in price, It said to be a relativity elastic demand. It is related
with luxury goods
D
D
q1 q2
Quantity Demanded
Price
p2
p1
 Relatively Elastic Demand (ep>1)

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 Perfectly Elastic Demand (ep=∞)
If a small change in price (i.e. fall or rise) leads to infinity in demand, or zero in
demand, it is said to be a perfectly elastic demand. It is perfectly hypothetical
concept.
Y
P D
X
0 Q Q1 Q2Quantity Demanded
Price

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Uses of Price Elasticity of Demand in Business
Decision Making
 Product pricing
 Pricing the Input
 Pricing of Joint Products
 Demand forecasting
 To Trade Unionist

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Why Price Elasticity of Demand Is Important
 International Trade
 Formulation Of Gorvernment policies
 Factor Pricing
 Decision Of Monopolist
 Paradox of poverty amidst plenty

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