Page 39 - VIRANSH COACHING CLASSES

In figure 3.15, when price falls from in price. Percentage method is also known
OP to OP (50%), demand rises from OQ to as Arithmetic method. Price elasticity is
1
OQ (25%). Therefore, the demand curve has a measured as :
1
steeper slope. Percentage change in Quantity demanded
Ed = Percentage change in Price
Find out : %  Q

Identify the type of price elasticity of Ed = %  P
demand for the following goods.
Mathematically, the above formula can be
1) Cosmetics 2) Medicine
presented as under.
3) School uniform 4) Air conditioners
 Q  P  Q P
Ed = ÷ ∴ Ed = ×  P
Try this : Q P Q
Complete the table Numerical example :
Sr. Degree of Types of Description Price Qty. Demanded Formula
No. elasticity elasticity Percentage (`) (in Kg)
of of 20 10  Q P
demand demand Ed = ×
25 09 Q  P
1 Perfectly Change in
inelastic price does not Original Price, P = 20, New price P = 25
affect demand P = 5 (Difference between new and original
at all. price)
2 Ed = 1 Change in
demand is Original Quantity Demanded, Q = 10, New
equal to demand = 9
change in Q = 1 (Difference between new and original
price
3 Ed > 1 Relatively quantity demanded)
elastic  Q P
4 Relatively Change in Ed = Q ×  P
inelastic demand is 1 20
less than Ed = 10 × 5
change in Ed = 0.4
price
5 Ed = ∞ Slight change Ed < 1
in price It means elasticity of demand is relatively
brings infinite inelastic.
change in
demand. Do you know?

While using percentage method of
Methods of Measuring Price Elasticity of measuring price elasticity of demand we
Demand : must keep following points in our mind :
1) Ratio or Percentage method : Ratio method 1) Value of elasticity of demand is negative
is developed by Prof. Marshall. According because of the negative slope of demand
to this method, elasticity of demand is curve but for the sake of simplicity we
measured by dividing the percentage ignore negative sign.
change in demand by the percentage change

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