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Questions
Explain the types of price elasticity of demand.
Explain the price elasticity with its types.
Solution
- Perfectly Elastic Demand (Ed = ∞): When a slight or zero change in the price brings about an infinite change in the quantity demanded of that commodity, it is called perfectly elastic demand. It is only a theoretical concept. For example, a 10% fall in price may lead to an infinite rise in demand.
Ed = `"Percentage change in Quantity Demanded"/"Percentage change in Price"` = ∞
Ed = ∞
In the figure, the demand curve DD is a horizontal line parallel to the X-axis indicating perfectly elastic demand. - Perfectly inelastic demand (Ed = 0): When a percentage change in price has no effect on the quantity demanded of a commodity it is called perfectly inelastic demand. For example, a 20% fall in price will have no effect on the quantity demanded.
Ed = `(%Delta"Q")/(%Delta"P")`
Ed = `0/20 = 0`
Ed = 0
In practice, such a situation rarely occurs. For example, demand for salt, and milk.
In the figure, when the price rises from OP to OP1 or when the price falls from OP to OP2, demand remains unchanged at OQ. Therefore, the demand curve is a vertical straight line parallel to the Y axis, indicating perfectly inelastic demand. - Unitary elastic demand (Ed = 1): When a percentage change in price leads to a proportionate change in quantity demanded then demand is said to be unitary elastic. For example, a 50% fall in the price of a commodity leads to a 50% rise in the quantity demanded.
Ed = `(%Delta"Q")/(%Delta"P") = 50/50 = 1`
∴ Ed = 1
In the figure, when the price falls from OP to OP1 (50%), demand rises from OQ to OQ1 (50%). Therefore, the slope of the demand curve is a 'rectangular hyperbola'. - Relatively elastic demand (Ed >1): When a percentage change in price leads to more than proportionate change in quantity demanded, the demand is said to be relatively elastic. For example, a 50% fall in price leads to a 100% rise in quantity demanded.
Ed = `(%Delta"Q")/(%Delta"P")`
Ed = `100/50`
∴ Ed = 2
Ed > 1
In the figure, when the price falls from OP to OP1 (50%), demand rises from OQ to OQ1 (100%). Therefore, the demand curve has a flatter slope. - Relatively inelastic demand (Ed < 1): When a percentage change in price leads to less than proportionate change in the quantity demanded, demand is said to be relatively inelastic. For example, a 50% fall in price leads to a 25% rise in quantity demanded.
Ed = `(%Delta"Q")/(%Delta"P") = 25/50 = 0.5`
Ed = 0.5
∴ Ed < 1
In the figure, when the price falls from OP to OP1 (50%), demand rises from OQ to OQ1 (25%). Therefore, the demand curve has a steeper slope.
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Questions:
- Identify the types of price elasticity of demand from above diagram. (2m)
- Write slope of demand curve in above diagrams. (2m)
Complete the correlation.
Perfectly elastic demand : Ed = ∞ :: ______ : Ed = 1.
When the percentage change in quantity demanded is Less than the percentage change in price the demand curve is ______
Study the following figure and answer the question given below it.
Identify the price elasticity of demand from the following diagram:
Study the following figure and answer the question given below it.
Identify the price elasticity of demand from the following diagram:
Study the following figure and answer the question given below it.
Identify the price elasticity of demand from the following diagram:
Study the following figure and answer the question given below it.
Identify the price elasticity of demand from the following diagram:
The price elasticity of demand on a linear demand curve at the Y-axis is equal to ______.
Distinguish between:
Unitary elastic demand and Relatively elastic demand
Study the following diagram and answer the questions:
Questions:
- Calculate the price elasticity of demand using the ratio method.
- Find out the type of price elasticity of demand.
Complete the correlation:
Relatively inelastic demand : Perishable goods : : Relatively elastic demand : ______.
Identify and explain the concept from the given illustration:
A fall in the price of medicines by 30% resulted in no rise in demand for it.
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Identify and explain the concept from the given illustration:
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