Elasticity of demand One shot | Micro economics | Complete explanation with all Numericals
Sunil Panda- 11th Commerce・2 minutes read
Price Elasticity of Demand is a key concept in the chapter, with elastic demand indicating a change in demand with price and inelastic demand showing constant demand. Methods to measure elasticity include percentage and total expenditure methods, with factors like close substitutes, income, postponement, and uses affecting demand elasticity.
Insights
- Elastic demand signifies that demand changes with price, while inelastic demand indicates demand remains constant, with the degree of demand elasticity ranging from zero to infinity.
- Factors influencing demand elasticity include the availability of close substitutes, consumer income, postponement of purchase, and the number of uses of a commodity, impacting how demand responds to price changes.
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Recent questions
What is Price Elasticity of Demand?
Price Elasticity of Demand measures how demand changes with price.
What does Elastic demand signify?
Elastic demand shows demand changes with price.
How is demand elasticity measured?
Demand elasticity is measured using percentage or total expenditure methods.
What factors influence demand elasticity?
Factors include close substitutes, consumer income, postponement, and number of uses.
Can you provide an example of calculating elasticity?
An example involves price change from 10 to 8 and quantity from 100 to 50.
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Summary
00:00
Understanding Price Elasticity of Demand Calculations
- Price Elasticity of Demand is the focus of the chapter being revised.
- Elastic demand refers to the quantitative measure of how much demand decreases with an increase in price.
- Elastic demand signifies that demand changes with price, while inelastic demand indicates demand remains constant.
- The degree of demand elasticity ranges from zero to infinity, with zero representing perfectly inelastic and infinity representing perfectly elastic demand.
- Two methods to measure elasticity of demand are the percentage method and the total expenditure method.
- The percentage method formula is: Percentage change in quantity demand divided by percentage change in price.
- Practical problems can be solved using the formula: Elasticity of Demand = (Change in Quantity / Initial Quantity) / (Change in Price / Initial Price).
- An example calculation shows how to determine elasticity of demand when price changes from 10 to 8 and quantity demanded changes from 100 to 50.
- Another example demonstrates calculating elasticity of demand when initial demand is 80 units, demand falls by 4 units due to a price increase of 10, and elasticity is given as 1.5.
- A final example involves a 20% price increase resulting in quantity demand falling from 150 to 120, leading to a calculation of elasticity as -0.8, indicating relatively elastic demand.
13:16
Analyzing Demand Elasticity and Total Expenditure Methods
- Class will be 8, if they buy 40% more quantity, then they are buying 40% more quantity.
- Calculate price elasticity and demand using the formula of Hain Ad: Percentage Change in Quantity is 40%, Percentage Change in Price is V2 - P1 / P1 * 100.
- Deduct 10 from 8, then subtract 2 from zero, resulting in -20, 40 / -20 = -2, indicating relatively elastic demand.
- Use the formula Percentage Change Quantity 40 Percentage Price P2 - P1 / P1 * 100, or 10 is in art like 2 * 10 - 20 is cut.
- In the Total Expenditure Method, compare price and total expenditure, understanding the relationship and schedule.
- Total Expenditure Method involves comparing price with total expenditure, noting the direct relationship between price and expenditure.
- Factors influencing the supply of a product include Available Close Substitutes, Income of the consumer, Postponement, and Number of Uses.
- Demand elasticity is affected by the availability of close substitutes, consumer income, postponement of purchase, and the number of uses of a commodity.
