Power Point Presentation on Price elasticity of demand useful for students to make project on economics for 12th board examination.

1. PRICE ELASTICITY
OF DEMAND
We’ll read about the following points:-
 Concept of Price Elasticity of Demand
 Measurement of Price Elasticity of Demand: Percentage-Change method
 Distinct Situations of Elasticity of Demand
 Factors Affecting Price Elasticity of Demand

2. 1. Concept of Price Elasticity of Demand
Here, the degree of change in quantity demanded (or
the degree of extension and contraction of demand) in
response to change in own price of the commodity is
the subject matter of elasticity of demand.
Price elasticity of demand is a measurement of the
degree of change in demand in response to a change in
own price of the commodity.

3. 2. Measurement of Price Elasticity of Demand:
Percentage-Change Method
 Price elasticity of demand is computed as the ratio between
percentage change in quantity demanded and percentage
change in price.
Price Elasticity of Demand =
(-) Percentage change in quantity demanded
percentage change in price
= Q P
P Q

4. Here is an illustration

5. Here, two critical questions arise:
1. Why should change in quantity and price be considered
as percentage change?
The answer is simple.
In case we don’t consider the changes in terms of percentage,
the comparison of elasticities makes no sense. For example, price
of good-X increases from Rs. 15 to Rs. 30 and demand decreases
from Rs. 60 to Rs. 30 then in terms of absolute change we can only
say that demand is reduced to half when prices are doubled, which
makes no sense. In terms of percentage change, we can state that 1%
change in price leads to 0.5% change in demand for good- X.

6. 2. Why should ‘-’Sign be prefixed in the equation
estimating elasticity of demand?
Here, ‘-’ is prefixed to show the inverse relationship between
quantity demanded and own price of the commodity. If ‘-’ sign is
not prefixed, we’ll get negative results like this: -1, -2, -3, etc.
[It is important to note that students may get a numerical problem
where the examiner himself specifies the coefficient of elasticity of
demand with a negative sign.

7. Slope of Demand Curve and Elasticity of
Demand
 Slope of demand curve shows total change (absolute change) in
quantity demanded in relation to an absolute change in own price
of the commodity.
 Elasticity on demand, on the other hand, shows percentage
change in quantity demanded in relation to a percentage change
in own price of the commodity.

8. 3. Distinct situations of Elasticity of Demand
Situation 1: Horizontal Straight Line Demand Curve and
Elasticity of Demand
A horizontal straight line demand curve is also known as
“perfectly elastic” demand curve. It shows that Ed = ∞. It is a
situation when even a slightest rise in price leads to zero demand
for the commodity. For Example, if price is slightly increased
from ₹ 4, the demand falls to zero. At the prevailing price of ₹ 4,
quantity demanded may be 10, 20, 30 or any amount of the
commodity. In such a situation, elasticity of demand is infinite
(or Ed = ∞). Let’s see a illustration of this example.

9. Let’s see a graphical presentation: 1

10. Situation 2: Vertical Straight Line Demand Curve
and Elasticity of Demand
 A vertical straight line demand curve is known as perfectly
inelastic demand curve. It shows that Ed = 0. It is a situation
when change in price causes no change in quantity
demanded. For example, when price is ₹ 2, demand is 4
units. When prices rises to ₹ 4 to ₹ 6, quantity demanded
remains constant at 4 units. Hence elasticity of demand is
zero or (Ed = 0).

11. Let’s see a graphical presentation: 2

12. Situation 3: Rectangular Hyperbola Demand
Curve and Elasticity of Demand
A rectangular hyperbola is a curve under which all rectangular
areas are equal. It needs to be noted that rectangular area under
which demand curve shows total expenditure on the commodity
(total expenditure = P X Q). Thus, when the demand curve is
rectangular hyperbola, total expenditure on the commodity
remains constant, no matter price of the commodity increases or
decreases. Marshall treats this as a situation of unitary elasticity
of demand.

13. Let’s see a graphical presentation: 3

14. Situation 4: Elastic Demand Curve and Elasticity of
Demand
Demand for a commodity is ‘elastic’ if Ed >1(elasticity of
demand is greater than unitary). Implying that percentage
change in quantity demanded is greater than percentage change
in own price of the commodity.

15. Let’s see a graphical presentation: 4

16. Situation 5: Inelastic Demand Curve and
Elasticity of Demand
Demand for a commodity is ‘inelastic’ if Ed <1(elasticity of
demand is less than unitary). Implying that percentage change in
own price of the commodity is greater than percentage change in
quantity demanded.

17. Let’s see a graphical presentation: 4

18. Factors Affecting Price Elasticity of Demand
1. Nature of commodity
2. Availability of Substitute goods
3. Multiple Uses
4. Postponement of Use
5. Income Level of the Buyers
6. Habit of Consumers
7. Proportion of Income Spent on Commodity
8. Price Level
9. Time Period (inelastic in short period and elastic in long period
of time)

19. Thank you
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