2. TO P I C S W E H AV E
TO D I S C U S S
INTRODUCTION
• PRICE ELASTICITY OF SUPPLY
• PRICE ELASTICITY OF DEMAND
• THEIR APPLICATION IN REAL LIFE
3. I P R I C E E L A S T I C I T Y O F S U P P L Y
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Price elasticity of supply
is a concept in economics
that measures how
responsive the quantity
supplied of a good or
service is to changes in
its price. It is calculated
as the percentage
change in the quantity
supplied divided by the
4. • THE FORMULA FOR PRICE ELASTICITY OF
SUPPLY IS:
• PES = (% CHANGE IN QUANTITY SUPPLIED)
/ (% CHANGE IN PRICE)
• THE VALUE OF PES CAN BE POSITIVE OR
NEGATIVE:
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5. P R I C E E L A S T I C I T Y O F S U P P LY
( P E S ) I S A C O N C E P T T H AT I S
H E L P F U L I N S E V E R A L WAY S
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Production Planning: Understanding the PES can assist
businesses and producers in planning their production levels. If
the supply of a good or service is inelastic (PES < 1), producers
may need more time to adjust their production to changes in
price. In contrast, if supply is elastic (PES > 1), they can quickly
respond to changes in demand and price.
6. RESOURCE ALLOCATION:
PES HELPS IN RESOURCE ALLOCATION DECISIONS. FOR GOODS WITH
AN INELASTIC SUPPLY, PRODUCERS MAY NEED TO INVEST IN MORE
RESOURCES, SUCH AS LABOR OR MACHINERY, TO INCREASE
PRODUCTION. CONVERSELY, FOR GOODS WITH ELASTIC SUPPLY, THEY
CAN ADJUST RESOURCE ALLOCATION MORE EASILY.
PRICING STRATEGIES:
FIRMS CAN USE PES TO INFORM THEIR PRICING STRATEGIES. IF THE
SUPPLY OF A PRODUCT IS INELASTIC, A FIRM CAN INCREASE THE
PRICE WITHOUT REDUCING THE QUANTITY SUPPLIED SIGNIFICANTLY.
ON THE OTHER HAND, IF SUPPLY IS ELASTIC, A PRICE INCREASE MIGHT
LEAD TO A SUBSTANTIAL REDUCTION IN SUPPLY.
7. P R I C E E L A S T I C I T Y
O F D E M A N D
PRICE ELASTICITY OF DEMAND IS
A MEASUREMENT OF THE
CHANGE IN THE CONSUMPTION
OF A PRODUCT IN RELATION TO
A CHANGE IN ITS PRICE
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8. F O R M U L A O F P R I C E
E L A S T I C I T Y O F D E M A N D
Price Elasticity of Demand (PED)
= % change in quantity
demanded / % change in price
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9. T Y P E S O F P R I C E E L A S T I C I T Y O F
D E M A N D
PERFECTLY ELASTIC DEMAND
WHEN A SMALL CHANGE (RISE OR FALL) IN THE PRICE RESULTS IN A LARGE CHANGE
(FALL OR RISE) IN THE QUANTITY DEMANDED, IT IS KNOWN AS PERFECTLY ELASTIC
DEMAND.
. IN SUCH A CASE, THE DEMAND IS PERFECTLY ELASTIC OR EP =∞.
PERFECTLY INELASTIC DEMAND
WHEN A CHANGE (RISE OR FALL) IN THE PRICE OF A PRODUCT DOES NOT BRING ANY
CHANGE (FALL OR RISE) IN THE QUANTITY DEMANDED, THE DEMAND IS
CALLED PERFECTLY INELASTIC DEMAND.
IN THIS CASE, THE ELASTICITY OF DEMAND IS ZERO AND REPRESENTED AS EP = 0.
GRAPHICALLY, PERFECTLY INELASTIC DEMAND CURVE IS REPRESENTED AS A VERTICAL
STRAIGHT LINE
10. E L A S T I C D E M A N D
INELASTIC DEMAND
WHEN A PERCENTAGE OR PROPORTIONATE CHANGE (FALL OR RISE) IN PRICE
RESULTS IN LESS THAN THE PERCENTAGE OR PROPORTIONATE CHANGE
(RISE OR FALL) IN DEMAND, THE DEMAND IS SAID TO BE RELATIVELY
INELASTIC DEMAND.
IN OTHER WORDS, A CHANGE IN DEMAND IS LESS THAN THE CHANGE IN
PRICE. THEREFORE, THE ELASTICITY OF DEMAND IS LESS THAN 1 AND
WHEN A PROPORTIONATE OR PERCENTAGE CHANGE (FALL OR RISE) IN PRICE RESULTS IN
GREATER THAN THE PROPORTIONATE OR PERCENTAGE CHANGE (RISE OR FALL) IN
QUANTITY DEMANDED, THE DEMAND IS SAID TO BE RELATIVELY ELASTIC DEMAND.
IN OTHER WORDS, A CHANGE IN DEMAND IS GREATER THAN THE CHANGE IN PRICE.
THEREFORE, IN THIS CASE, ELASTICITY OF DEMAND IS GREATER THAN 1 AND
REPRESENTED AS EP > 1. THE DEMAND CURVE OF RELATIVELY ELASTIC DEMAND IS
GRADUALLY SLOPING
11. U N I T E L A S T I C D E M A N D
UNITARY ELASTIC DEMAND OCCURS
WHEN A CHANGE (RISE OR FALL) IN PRICE
RESULTS IN EQUIVALENT CHANGE (FALL
OR RISE) IN DEMAND.
THE NUMERICAL VALUE FOR UNITARY
ELASTIC DEMAND IS EQUAL TO ONE,
I.E., EP =1. THE DEMAND CURVE FOR
UNITARY ELASTIC DEMAND IS A
RECTANGULAR HYPERBOLA
12. P R I C E E L A S T I C I T Y O F S U P P LY
A N D D E M A N D H A S VA R I O U S
R E A L - L I F E A P P L I C AT I O N S
Gasoline Prices: When gasoline prices rise significantly, the demand
usually remains relatively inelastic because people still need to commute to
work. However, if the price rises too high, consumers may start to shift
towards more fuel-efficient vehicles, showcasing elasticity in demand.
Luxury Goods: Luxury items like designer clothing often have highly
elastic demand. As the price increases, the quantity demanded decreases
significantly, and vice versa. Consumers are more responsive to price
changes for these non-essential items
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13. Housing Market: In a competitive housing market, the supply is
often inelastic in the short term. It takes time to build new
homes, so when demand increases rapidly, prices can surge
before new supply is available. This can create price bubbles.
Agricultural Products: The supply of some crops can be
inelastic due to factors like weather conditions. If there's a
sudden surge in demand, the quantity supplied may not
respond quickly, leading to price volatility.
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14. Taxation: Taxes on goods can reveal elasticity. For instance,
cigarettes often have inelastic demand, making them a target for
heavy taxation as it generates substantial revenue without
drastically reducing consumption.
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15. S U M M A RY
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Price elasticity of supply and demand measures
how the quantity supplied and demanded
respond to price changes. In real life, it's
essential for businesses to set prices and
production levels, for governments to tax
goods, and for understanding how markets
respond to changes, helping inform decision-
making, resource allocation, and infrastructure
planning.
16. M E E T O U R T E A M
ASHISH KUMAR
RAUT
LEADER
AKSH KUMAR
RAJPUT
CO - LEADER
ISHAAN
GOYAL
HOST
DIVYAY GOEL
CO - HOST
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17. T H A N K YO U
MADE BY ASHISH
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