Elasticity of Demand

Dr. SHEKHAR MISHRA

Assistant Professor (Finance)
 Price Elasticity of
Demand
▪ Elasticity
– Responsiveness
▪ Price elasticity of demand
– Consumers’ responsiveness to a change in price
– Percentage change in quantity demanded divided by percentage
change in price
Price Elasticity of
Demand
%q
ED =
%p
q p
ED = 
(q + q' ) / 2 ( p + p' ) / 2

▪ Law of demand
▪ ED negative
▪ Absolute value of ED positive
 Demand Curve

If the price of Chat drops from

Rs 40 to Rs 30, the quantity
demanded increases from 100
Rs 40 a
to 150.
Price per Chat
b
Rs 30

0 100 150
 Categories of ED
▪ If %∆q < %∆p
– ED between 0 and 1
– Inelastic D
▪ If %∆q > %∆p
– ED greater than 1
– Elastic D
▪ If %∆q = %∆p
– ED = 1
– Unit elastic D
Thank You