Download elasticity of demand

WELCOME TO
ECONOMICS
PROJECT
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PREPARED BY
MANOTOSH KUMAR PATI .
JAWAHAR NAVODYA VIDYALAYA
BAGUDI,BALASORE,ORISSA
A PROJECT ON
• PRICE ELASTICITY OF DEMAND
FOR CLASS-XII (Hum & Com)
Contents
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Meaning of the Concept
Related questions
Types of elasticity of demnad
Market survey by the students
Mathematical Formula
Diagrammatic Presentation
Conclusion
Acknowledgement
Elasticity – the concept
The responsiveness of one variable to changes in
another
When price rises what happens to demand?
Demand falls
BUT!
How much does demand fall?
Content related questions
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If price rises by 10% - what happens to
demand?
We know demand will fall
By more than 10%?
By less than 10%?
Elasticity measures the extent to
which demand will change
Types of elasticity of demand
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3 basic types used:
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Price elasticity of demand
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Income elasticity of demand
Cross elasticity
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Market Survey
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A group of students have visited the different
shops such as Grocery shops, Readymade
garments shop,
Two wheeler show room ,Electronics show
rooms ,Departmental stores as well Super
Market .They enquired the prices and
quantity of sale of different items of previous
week .They also noted down the changes
that have taken place in prices of different
commodities as well as the changes made
in their sale.
Market Survey(Contd)
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It has been observed that the amount of
sale has increased to a greater extent in
case of Comfortable and Luxurious
commodities ,it means these commodities
are very much sensitive to their prices
,where as incase of necessaries
commodities the response was very weak
.In other words the former are called as
elastic commodities and later are called as
inelastic or less elastic commodities.
Price Elasticity of Demand
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The responsiveness of demand to
changes in price
Where % change in demand is greater
than % change in price – elastic
Where % change in demand is less than
% change in price - inelastic
Price elasticity of demand
Total revenue is price x quantity
sold. In this example, TR = £5
£500,000.
Price
This value is represented by the
grey shaded rectangle.
£5
Total Revenue
Quantity Demanded (000s)
100
Price elasticity of demand
Price
If the firm decides to decrease
price to (say) £3, the degree of
price elasticity of the demand
curve would determine the
extent of the increase in demand
and the change therefore in total
revenue.
£5
£3
Total Revenue
100
140
Quantity Demanded (000s)
Price elasticity of demand
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The Mathematical formula
Ped =
%
Change in Quantity Demand
___________________________
% Change in Price
If answer is between 0 and -1: the relationship is
inelastic
If the answer is between -1 and infinity: the relationship is
elastic
Note: PED has – sign in front of it; because as price rises
demand falls and vice-versa (inverse relationship between
price and demand)
Types of Price elasticity of
demand
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Perfect price elasticity of demand
Imperfect price elasticity of demand
More elastic demand
Less elastic demand
Unit elastic demand
Perfect elasticity of demand
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It refers to a situation
when a slight change
in price leads to a
infinite change in
quantity demanded .It
is called as perfect
elasticity of demand.
The value of ed=∞
Perfectly inelastic demand
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It refers to a situation
when any change in
price of a commodity
leads to no change in
its quantity demanded.
It is called as perfectly
inelastic supply.
The value of ed=0
More elastic demand
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It refers to a situation
when a small change
in price leads to
considerable change
in quantity
demanded. It is
called as more
elasticity or higher
elasticity of demand .
The value of ed>1
More elasticity of demand
Price (£)
10
Producer decides to reduce price to increase sales
% Δ in Price = - 30%
% Δ in Demand = + 300%
Ped = - 10 (Elastic)
Total Revenue rises
Good Move!
7
D
5
Quantity Demanded
20
Less elasticity of demand
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Less elastic demand curve
Y
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It refers to a situation
when a considerable
or remarkable change
in price leads to a
very small change in
quantity demanded of
a commodity .It is
called as less elastic
or inelastic demand .
The value of ed<1
D
P
P
R
I
C P1
E
D
O
M
M1
DEMAND
X
Less elasticity of demand
Price (£)
Producer decides to lower price to attract sales
% Δ Price = -50%
10
% Δ Quantity Demanded = +20%
Ped = -0.4 (Inelastic)
Total Revenue would fall
5
Not a good move!
D
5
6
Quantity Demanded
Unit elastic demand
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It refers to a situation
when the percentage
change in price and
percentage in quantity
demaned are equal.
The value of ed=1
Unit elastic demand
curve
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Y
D
P
P1
D
O
M
M1
X
Conclusion
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Elasticity of demand is a relative concept
that shows direction as well as degree of
change in demand
It is mainly of 5 types but in real sense
commodities are two types i;e more elastic
and less elastic.
It is helpful to finance minister to levy
indirect taxes ,producers to decide the price
and employers to decide the wages as well
as to planners to implement a plan
SOURCE
NCERT Text Book
 Advanced economic theory by
H.L.AHUZA
 google.co.in (images of elasticity of
demand)
 Data collected from different shops and
stores
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ACKNOWLEDGEMENT
* My sincere thanks to
* Mr.Chandresh,Regional co-ordinator of Intel
Teach to the Future
* Mr.Mariapaan ,Venue Principal
of JNV,Cuttack,
* Dealers and Owners of different shops and
stores .
* Mr.k.C.Shanmugam ,JNV,Balasore
Who gave me an opportunity to attend the
training programme