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PRICE ELASTICITY OF DEMAND

Posted on July 31, 2019 By commerceiets No Comments on PRICE ELASTICITY OF DEMAND

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  • MEANING
    • DEGREES OF PRICE ELASTICITY OF DEMAND
        • PERFECTLY ELASTIC DEMAND
        • MORE ELASTIC DEMAND
        • UNITARY ELASTIC DEMAND
        • LESS ELASTIC DEMAND
        • PERFECTLY INELASTIC DEMAND

MEANING

Price Elasticity of demand is the rate at which quantity purchased changes with the change in price. It is the ratio of percentage change in quantity demanded to percentage change in the price of the commodity, other factors remaining the same.

Ed= (-) Percentage change in quantity demanded/ Percentage change in price

ACCORDING TO BOULDING

“Price elasticity of demand measures the responsiveness of the quantity demanded of a good to the change in its price.”

ACCORDING TO MARSHALL

“Price elasticity of demand is ratio of the percentage change in quantity demanded to the percentage change in its price.”

ACCORDING TO ANATOL MURAD

“Elasticity of Demand is the ratio of relative change in quantity to relative change in price.”

ACCORDING TO SAMUELSON

“The concept expresses the degree of responsiveness of quantity demanded to change in its price.”

Thus, the measure of the magnitude of change in demand due to a given change in price is known as Price Elasticity of Demand.

DEGREES OF PRICE ELASTICITY OF DEMAND

The various degrees of Price Elasticity of Demand are as follows:

PERFECTLY ELASTIC DEMAND

Perfectly Elastic Demand is one in which a small change in price will cause an infinitely large change in amount demanded. A small rise in the price of the commodity reduces the demand to zero.

Ed= ∞

Price. Quantity. Perfectly elastic demand curve.

In this case the shape of demand curve is parallel to horizontal axis.

MORE ELASTIC DEMAND

When the change in demand is more than the change in price, demand is said to be More Elastic Demand. Such demand is also known as ‘Greater than unitary Price Elasticity of Demand.’  

Ed> 1

In this case the demand curve is flatter and gradually sloping.

UNITARY ELASTIC DEMAND

When the change in demand is equal to the change in price, demand is said to unitary elastic demand.

ACCORDING TO MARSHALL

“A commodity has elasticity equal to one if the total expenditure of the consumers on the commodity remains the same even when price changes.”

Ed= 1

In this case, the demand curve is rectangular hyperbola.

LESS ELASTIC DEMAND

When the change in demand is less than the change in the price, demand is said to Less Elastic Demand. Such demand is known as ‘Less than Unity Price Elasticity of Demand.’

Ed <1

In this case, the demand curve is steep and rapidly sloping.

PERFECTLY INELASTIC DEMAND

When there is no change in the demand i.e. the demand remains fixed at a specific level even though there is any change in price, demand is said to be Perfectly Inelastic Demand. In such a situation, rise or fall in price do not affect demand in any way.

Ed=0

In this case, the demand curve is parallel to Y-axis.

Also StudyAlso StudyAlso StudyAlso Study
Theory of DemandLaw of DemandDemand FunctionExceptions of law of demand
Elasticity of demandChange in demandPrice elasticity of demandLaw of demand Vs Elasticity of demand
Factors affecting price elasticity of demandProduction functionShort run vs long run production functionLaw of variable proportions
Types of demandManagerial economicsCharacteristics of managerial economicsScope of managerial economics
Utility analysisLaw of diminishing marginal utilityLaw of equi marginal utilityConsumers Equilibrium
Indifference curve analysisConsumer equilibrium using indifference curve analysisRelationship between TP, AP and MPLaw of increasing returns
Law of diminishing returnsLaw of constant returnsReturns to ScaleEconomies and diseconomies of scale
Concept of costsRelationship between AC and MCTraditional theory of costsModern theory of costs
Explicit vs Implicit costsRevenuePerfect competitionMonopoly 
Price discriminationDifference between perfect competition and monopolyPerfect Vs Monopolistic competitionMonopoly and monopolistic competition
Product differentiation strategyMonopolistic competitionNational Income in IndiaMeasurement of national income in India
Consumption functionKeynes Psychological law of consumption
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Price Elasticity of demand
Price Elasticity of demand
MICRO ECONOMICS Tags:DEMAND, ELASTICITY OF DEMAND

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