TOPIC – ELASTICITY OF

DEMAND
submitted to- Dr. Anupreet kaur mavi
Submitted by – 1. shikha patial
2. shilpa goel
Content
1. Meaning of price elasticity
2. Types of elasticity of demand
3. Meaning of price elasticity of demand
4. Types of price of elasticity of demand
5. Methods of measuring of price elasticity of
demand
MEANING OF ELASTICITY OF
DEMAND-

Elasticity of demand measure of the degree or the extent of

responsiveness of quantity demanded of a product to a change in its
market price.
The responsiveness of the percentage of demand to change in price
According to Pofessor Lipsey : The ratio of the percentage change in
demand to the percentage change in price .
TYPES OF ELASTICITY OD DEMAND
1. WHAT IS ‘PRICE ELASTICITY OF
DEMAND’?
Price elasticity of demand is a measure of the change ,in the
quantity demanded or purchased of a product in relation to its
price change Expressed mathematically , it is ;

Price elasticity of demand = % change in

Quantity demanded / % change in price
TYPES OF PRICE ELASTICITY OF
DEMAND

1.Elastic Demand (Ed>1)

2.Inelastic Demand (Ed<1)
3.Unitary Elastic Demand (Ed=1)
4.Perfectly Inelastic Demand (Ed=0)
5.Perfectly Elastic Demand (Ed=∞)
1.ELASTIC DEMAND (ED>1)

Elastic demand is a condition in which a small percentage change

in the price of a product will lead to a larger percentage change in
the quantity demanded .
2.INELASTIC DEMAND (ED<1)

Inelastic demand is a condition in which a large

percentage change in the price will only affect the
quantity demanded by a small percentage .
3. UNITARY ELASTIC DEMAND (ED=1)

Unitary demand is a condition in which a large

percentage change in price equals a percentage
change in quantity demanded .
4.PERFECTLY INELASTIC DEMAND
(ED=0)

Perfectly inelastic demand is a condition in

which the quantity demanded does not change
as the price changes .
5. PERFECTLY ELASTIC DEMAND(ED=∞)

Perfectly elastic demand is a condition in which

a small percentage change in price leads to an
infinite percentage change in the quantity
demanded.
Measuring Price Elasticity of Demand :
Some of the methods used for measuring price elasticity of demand are as follows:

1. Total outlay method

2. Point method
3. Arc elasticity method
4. Percentage method
1. TOTAL OUTLAY METHOD :
According to this method , price elasticity of demand can be measured by
comparing total expenditure on a commodity before and after the price
change .
Total Outlay = price quantity demanded
When comparing the expenditure , we may get one of three outcome .
They are
1. Elasticity of demand will be greater than unity (Ep>1): when total
expenditure increases with fall in price and decrease with rise in price , the
value PED will be greater than 1 . Here , rise in price and outlay or expenditure
move in opposite direction.
2. Elasticity of demand will be less than unity (Ep <1): when total expenditure
decrease with fall in price and increase with price , the value of PED will be less
than 1. here price of commodity and total outlay move in same direction .
3. Elasticity of demand will be equal to unity (Ep=1): when total expenditure
on commodity remains unchanged in reponse to change in price of the
commodity , the value of PED will be equal to 1.
 Total Price
Quantity outlay or elasticity
Cases Price (P) demande expenditu of
d (Q) re demand
(E = PXQ) (PED)

6 1 6 PED =
I
5 2 10 10/6, > 1

4 3 12
PED =
II
3 4 12 12/12, = 1

2 5 10
PED =
III
1 6 6 6/10, < 1
2. POINT METHOD :
When we measure elasticity of demand at a point on linear
demand curve which intersects both axes , it is linear demand
curve which measuring elasticity of demand . The demand curve
has a negative slopes but price elasticity varies from point to point.
3. ARC ELASTICITY :
Arc elasticity is the elasticity of one variable with respect to another
between two given points . It is used when there is no general function
to define the relationship of the two variables . Arc elasticity is also
defined as the elasticity between two points on a curve.
4. PERCENTAGE METHOD :
Percentage method is one of the commonly used approaches of measuring price elasticity of
demand under which price elasticity is measured in terms of rate of percentage of change in
quantity demanded to percentage change in price .
According to this method , price elasticity of demand can be mathematically expressed as
EXAMPLE ,OF PERCENTAGE METHOD :
For an examples : when the price of a commodity was Rs 10 per unit , its demand in the
market was 50 units per day . When the price of the commodity fell to Rs 8, the demand rose to
60 units . Here price elasticity of demand cab be calculated as