This document discusses methods of measuring price elasticity of demand and provides examples of calculating elasticity using percentage and total expenditure methods. It also lists factors that affect the elasticity of demand, including the availability of substitutes, income level, whether the good is a necessity or luxury, ability to postpone consumption, number of uses, and proportion of income spent on the good. Elasticity is higher for goods with close substitutes, luxuries, those that can be postponed, have multiple uses, or consume a large portion of income, while inelastic for necessities, goods without substitutes, or that consume a small portion of income.

1. DEMAND
PART 2
SUDHANSHU PANDEY

2. 1) Percentage method
2) Total Expenditure method
METHODS OF MEASURING PRICE ELASTICITY OF DEMAND

3. Percentagemethod

4. PRACTICAL QUESTIONS (Elasticity of demand)

5. Q.1) When price is 10 per unit, demand for a commodity is 100 units. As the price falls to 8
per unit, demand expands to 150 units. Calculate elasticity of demand

6. Q.2) The demand for a good at 10 per units is 40 units. Price falls by 5 if price elasticity of
demand is (-) 3, calculate the new quantity demanded.

7. Q.3) The initial demand for a commodity is 80 units, the demand fall by 4 units due to rise in
price by 10. if price elasticity of demand is 1.5, calculate the price before change in demand.

8. Q.4) Calculate the price elasticity of demand for a commodity when its price increase by
25% and quantity demand falls from 150 units to 120 units.

9. Q.5) A consumer buys a certain quantity of a good at a price of ₹10 per unit. When price falls
to ₹8 per unit. She buys 40% more quantity
calculate price elasticity of demand.

10. Q.6) ed = (–) 0.5, its quantity demand falls by 5 units when its price rises by ₹1 per unit.
Calculate the quantity demanded if the price before the change is ₹5 per unit.

11. TOTAL EXPENDITURE METHOD

12. Q.1) Pawan spent ₹ 1000 on a commodity and bought 25 units of it. When its
price changed. He spent ₹ 1200 and bought 20 units. Find out the elasticity of
demand by total expenditure method.

13. FACTOR’S AFFECTING ELASTICITY OF DEMAND
(i)Availability of Closed Substitutes: Demand for goods which have close
substitutes (like tea and coffee) is Relatively More elastic. Because when price
of such good rises, the consumers have the option of shifting to its substitutes.
Goods without close substitutes like cigarettes and liquor are generally found
to be less elastic demand.
(ii)Income of Consumer: Elasticity of demand for a good also depends on the
income of consumer. A consumer with high level of income will not be
bothered by rise in its price. Hence they have less elastic demand, but A
consumer having low level of income having more elastic demand.
(iii)Luxurious vs Necessaries: The demand for necessary goods like salt,
kerosene oil, matchbox, textbooks, several vegetables etc. have less elastic
demand. Luxuries like AC, costly furniture, fashionable garments have more
elastic demand. It means demand can change for luxuries with change in price
but not in necessaries

14. (iv)Postponement: The goods which consumption can be postponed like cars,
residential houses having. More elastic demand whereas the goods which
consumption can not be postponed like medicines, salt etc. having less elastic
demand.
(v)Number of uses of the commodity: Those commodities which have multiple
uses like electricity used for various purpose. So it have more elastic demand
whereas the commodity such as paper has only few uses it demand is likely to
be less elastic
(vi)Part/Proportion of Income Spent on Consumption: Goods on which
consumer’s spend a small proportion of their income like toothpaste, boot-
polish, needle, news paper, salt, match box etc. will have inelastic demand. On
the other hand goods on which the consumer spent a large proportion of their
income like clothes Bikes etc. have elastic demand.

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