Presented by

AMRENDRA
KUMAR
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 Elasticity…..how much do
consumer’s react?
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 Elasticity – the concept

• Elasticity is the responsiveness of one variable to

changes in another

• E.g. When price rises what happens to

demand?
BUT….

Demand falls By how much

does demand fall?

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 Elasticity – the concept

• If price rises by 10% - what happens to demand?

We know demand will fall Elastic

• By more than 10%?

• By less than 10%? Inelastic

• Elasticity measures the extent to which demand

will change

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 There are 4 types of elasticity

• Price elasticity of demand

• Price elasticity of supply

• Income elasticity of demand

• Cross elasticity

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 AS Economics

Price Elasticity of Demand

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 Elasticity

The demand curve can be a

Price (£) range of shapes each of which
is associated with a different
relationship between price and
the quantity demanded.

They all
have
differing
levels of
elasticity

Quantity Demanded
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 Elastic V Inelastic

• Price Elasticity of Demand

• 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

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 Elasticity

The Formula:
% Change in Quantity Demanded
___________________________
Ped =
% 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)
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 Values for elasticity of demand

• If Ped = 0 then demand is perfectly inelastic - demand does not

change when the price changes

• If Ped is between 0 and 1 then demand is inelastic

• If Ped = 1 then demand is said to unit elastic

• If Ped > 1, then demand responds more than proportionately to a

change in price – i.e. demand is elastic

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 Elasticity through Demand curves

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 An inelastic demand

Price

Quantity Demanded
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 An inelastic demand

Price

£200

400 Quantity Demanded

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 An inelastic demand

Price Total revenue

= price x quantity

= £80,000
£200

400 Quantity Demanded

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 An inelastic demand

Price Total revenue

£400 = price x quantity

= £140,000
£200

350 400 Quantity Demanded

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 An inelastic demand

Price % change in demand =

£400

Was 350 and is now 400

£200
= 50 / 350 x 100

= 0.14 x 100 = 14%

350 400 Quantity Demanded
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 An inelastic demand

Price % change in demand = 14%

£400 % change in price =

£200 - £400 = 200/200 = 1

£200

1x100 = 100% change in

price

350 400 Quantity Demanded

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 An inelastic demand

Price % change in demand = 14%

£400 % change in price = 100%

Price elasticity of demand =

14 / 100.0
£200 =0.14 (inelastic)

350 400 Quantity Demanded

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 An elastic demand curve

Price

£200

400 Quantity Demanded

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 An elastic demand curve

Price

£200

£100

400 1200
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 An elastic demand curve

Price Total revenue when price = £200 =

£200

£100

400 1200
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 An elastic demand curve

Price Total revenue when price = £200 = £80,000

£200

£100

400 1200
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 An elastic demand curve

Price Total revenue when price = £200 = £80,000

Total revenue when price = £100 = £120,000

£200

£100

400 1200
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 An elastic demand curve

Price Price elasticity of demand

% change in demand =
% change in price =

£200

£100

400 1200
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 An elastic demand curve

Price Price elasticity of demand Formula

% change in demand = 200% = 200
100
% change in price = 100%

£200

£100

400 1200
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 An elastic demand curve

Price Price elasticity of demand = -2 (elastic)

% change in demand = 200%
% change in price = 100%

£200

£100

400 1200
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 Perfectly inelastic demand curve

Price
£400

£300

£200

600 Quantity Demanded

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 Perfectly elastic demand curve

Price

£200

400 1200
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 Your go again…

Elastic = customers will react more to a change

in price
Inelastic = customers will react less to a change
in price
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 Elastic or Inelastic ?

• Price increase by 10% and demand falls by 30%...

Price elasticity of demand is ??????

Elastic

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 Elastic or Inelastic ?

• Price increase by 10% and demand falls by 8%.....

Price elasticity of demand is ??????

Inelastic

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 Plenary - Elastic or Inelastic ?

• Price increase by 10% and demand falls by 10%...

Price elasticity of demand is ??????

Unitary Elastic

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 Elastic or Inelastic ?

• Price increase by 10% and demand falls by 0%... Price

elasticity of demand is ??????

Perfectly
Inelastic

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