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Price elasticity & decision making

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Price elasticity & decision making

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Price elasticity & decision making

  1. 1. Role of Price Elasticity of Demand in Decision-Making Prepared by – Vikash Gupta PGDM 1st year Sunstone Eduversity Faculty – Dr. Monica Gupta
  2. 2. Points of discussion • Types of price Elasticity Price Elastic Price Inelastic Unit Price Elastic • Importance of Price Elasticity for decision making
  3. 3. Types of price Elasticity To Understand this concept we will consider three merchant Elastic Products News Paper – Daily Express Inelastic Products Diesel Unit Elastic Product – Cloth
  4. 4. Types of price Elasticity Price Elastic Product - Daily Express (Ankit Khurana) A % change in price causes a bigger % change in demand 20 10 45 60 40 3 4 2 90 100 80 60 40 20 0 1 2 3 Total Quantity Price Total revenue Per Day News paper sale After knowing the price Elasticity of the product Ankit can take decision about price
  5. 5. Types of price Elasticity Price inelastic Product - Diesel (Ayush Sharma) A % change in price causes a smaller % change in demand 500 588 50 49 51 10 12 9 459 700 600 500 400 300 200 100 0 1 2 3 After knowing the price Elasticity of the product Ayush can make decision to change in price. Rs. Per Day diesel Consumption Total Quantity Price Total revenue
  6. 6. Types of price Elasticity Unit Price Elasticity Product - Cloth (Sonu) A %change in price there is equal % change in Demand There is no real example for unit price Elasticity , But can consider cloth as unit elastic product. 400 2800 2800 2800 500 7 5.6 4.7 600 3000 2500 2000 1500 1000 500 0 1 2 3 Total Qty. Price Revenue After knowing the price Elasticity of the product Sonu can make decision to change in price.
  7. 7. Importance of Price Elasticity for decision making • Importance of Price Elasticity for decision making The business firms considers price elasticity of demand when they take decisions regarding pricing of the goods. This is because change in the price of a product will bring about a change in the quantity demanded depending upon the coefficient of price elasticity • Price Elasticity can answer following Question What will be the effect on sales of my firm if I will increase price by 10%? How much I need to reduce price to get 25% more sale? • Uses in Economic Policy Regarding Price Regulation and Crop Restriction of Farm Products
  8. 8. Thank You

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