Thus: ‘The degree of respon: Eprandedofa commodity wa canes iia ‘may differ. To explain this phe a at Price of elasticity, economists express price wane sat demand in terms of its numerical value. Thus, price elasticity of demand may be expressed in terms of its numerical value. The numerical value of price elasticity of demand ranges from zero to infinity. In terms of its numerical value (ie., degree of elasticity), there are five different kinds of price elasticity of demand. 1, Perfectly Inelastic Demand: When quantity demanded of a commodity does not respond to a change in its price, then the elasticity of demand is zero. In this case, the quantity demanded remains the same, irrespective of any rise or fall in the price of the commodity. No matter what the price is, the same quantity is demanded. It is a case of perfectly inelastic demand. A demand curve of zero elasticity is known as perfectly or completely inelastic demand curve. This jg illustrated in Fig. 1 (). Vertical straight Tine demand curve D,, which is parallel to Y-axis, is perfectly inelastic demand curve. The amount purchased remains OQ irrespective of whether price is OP or OP,, Cases of perfectly inelastic demand are very rare even in the case of the basic necessities of life like food as demand for even basic necessities also changes because of a change in their price. However, in case of life-saving medicines the demand for such medicines is perfectly inelastic Perfectly Elastic i; When consumers A, hase all that they can get at a particular price but nothing at all at a slightly higher price, then the price elasticity of demand for a commodity is said to be infinite, bn this case, a very small fall in the price of a commodity causes the demand to increase to infinity (28). A demand curve of infinite elasticity is known ay perfectly or completely elastic demand curve, In this ease, demand is perfectly elastic. A horizontal straight line demand curve D, in Fig, 1 (i), whieh is parallel to X-axis, illustrates perfeetly elastic demand. At price OP, nothing, is demanded, but at a slightly lower price OP an infinitely large quantity is demanded, This is the extreme or upper limit of price elasticity. Cases of perfectly elastic demand are extremely rare, . Unitary Elastic Demand; When a given percentage change in the price of a commodity causes an equivalent percentage change in the quantity demanded, then the elasticity of demand is said to be unitary (or one), For example, if a fall in the price ‘of the commodity by 10 per cent causes an increase in the amount purchased of it by 10 per cent, the elasticity of demand is equal to one. A demand curve having, unitary elasticity over its whole range is shown in Fig, 1 (ii), Demand curve Dy has unitary elasticity at all the points on the curve. Such a curve is known as a rectangular hyperbola curve. (In mathematics, a rectangular hyperbola curve is a curve in which the total area of rectangles at different points on the curve is same. Such a curve extends towards the X-axis and the ‘Y-axis in a uniform way, but never touches them.) Therefore, the demand curve representing unitary elasticity of demand on each of its point assumes the shape of a rectangular hyperbola. Cases of unitary elastic demand are very rare indeed. | Elastic Demand: When the percentage change in the quantity demanded of commodity exceeds the percentage change late prepared to purchase al ne —_———___ i% ou a] ry Ns | 5 | ni oe t 0, x age cats " weet wie; varew ny me enand aes ice Bast pe that demand for this good is rely in its price, the elasticity of demand ini Fr instance if fal in the pe) ‘is greater than unitary, The elasticity of a commodity by 10 per cent Teas, Donan» n't K'nimcydast an noete quant demanagee ion x commie a et ant the demand is inelastic, Dena. Of the commodity by 10 per cent causes faites de oslatic between, Cae 4” increase in amount demanded by 35 per cent, the demand is sad to be slastic. Generally, the demand for prods is elastic in nature In Fig. 1 (i) emand curve D, is elastic between A te Tbe 41 summarises the descri iption of thee ‘ive types of elasticity of demand, = x "should be noted thatthe dy fe lemand curve need ‘ena iy ovr et = omy meee irve i More elastic at the ‘Upper { ieee = Ke elastic atthe lower Tange. As we ik downward sloping. straigh "hoy tthe pg 8 Sticty that varies on axis at the quantity axis FRANK 18C: ECONOMICS. i is only in the three exceptis Spee (0, (i) and (ii) of curve has the same elasticity Elasticity of demand for different. It is important to demand in order to compa of different goods. The me of demand can be looked 2 ( point elasticity and (ii) (© Point Elasticity: demand is measur on a demand cy; elasticity, In Fig. 2 the elasticity of ae sustorvor tama[aa eet enya ‘in tts price, the elasticity of demand 4% greater than unitary. The elasticity of demand here is greater than unity. Demand 1s said to be relatively elastic here. For example, if a fallin the price ofthe commodity by 10 percent causes an increase in amount demanded by 1S per cent, the demand is aid to be elastic. Generally, the demand for huury goods is elastic in nature. In Fig. 1 (0) Prvntage cng in Sent denied on Be OM Pelative'y larger than the 4 Price ioe OF, woop, r+ onan of Pi Ente not 0; 0" : 0 eo ‘ouatty we Vrs al demand for this good is relay. it Fr ts ain ge of a commodity by 10 per cent an increase in quantity demandeq by pet ca, the demand is inelastic. Dey! Gare i incatic betveen, Ca yl leads, 2 Table 4.1 summarises the description of thee | Ave ypes of elasticity of 1 e : thatthe demand curve need | have the same ela _ demand, be noted sticty over its enti S Sine is more elastic at the a tic at the lower range, As we ae 4 downward sloping straight ve has clasticity that Varies from Pile axis to zero at the quantity axis FRANK Is ECONOMICS Itis only in the three excepti "in panels (i), (i) and (ii) of ‘curve has the same elasticity. Elasticity of demand for different. It is important tc demand in order to compa of different goods. The me of demand can be looked « ( point elasticity and (i ( Point Elasticity: demand is measur on a demand cu elasticity, In Fig. 7 the elasticity of a __ SMASTICTTY OF DEMANDae schedule in Table 4.2 and graphical th in Fig. 3. me Table 4.2: Demand Schedule Me F gz OP ESTE f Fig. 3 Elastic Demand Demand schedule in Table 4.2 shows that when price falls from %60 to %50, total expenditure rises from 2600 to %650. This information is plotted in Fig. 3 to give the demand curve D,D,. Total expenditure corresponding to price %60 is represented by rectangle OA, and considering the change in total expenditure incurred on a commodity as a result of change in price of the commodity. We compare the total total expenditure corresponding to price expenditure incurred on a commodity before and %50 is represented by rectangle OB. As after the price change and thereby we can know price falls, total expenditure increases about the price elasticity of demand for the good. from 7600 to 2650 (ie., area of rectangle By using this method, we can categorise three OB is greater than the area of rectangle types of elasticities: OA). Thus, demand curve D,D, is elastic /! between A and B. 1. Elastic Demand: When a fall in the price of the commodity results in increase in ic Demand: When a fall i total expenditure, and a rise in the price ice of a commodity reduceelasticity here is equal to unity. Fir . rice falls rom OP; to Oneal eee falls from OM, to OM. The elasticity of demand is Tess than unity in this case, Thus, we can generalise that between T and B (zone one) price elasticity of demand is greater than unity; between B and C (zone two) elasticity is equal to unity and between C and T, (zone three) elasticity is less than unity. It should be noted that total expenditure method enables us to know only whether price elasticity of demand is equal to one, greater than one or less than one. But we cannot get the exact measure of the price elasticity. Thus, total expenditure method gives only a general measure rather than precise and exact measure of price elasticity of demand. Geometrically, price elasticity of demand can be measured with the help of what is known as “Point Method’. According, to this method, price elasticity of demand at any point on the demand Ge Peele eens b we demand curve lying above is RA. ee Fig. 7 @, at'a Point on the Demand Curve ) ‘ Lower line t ++ €, at point R = aaa a _ BB re Here, ¢, > 1 because RB > RA. Similarly, if we want to measure elasti at any other point on the demand cu say at K, KB eatK= Yq Here, ¢, <1 (since KB < KA.)and less of tea since coffee has become relatively cheaper. Similarly, if price of many close substitutes, including other brands of pizza and other types of fast food items. On the other hand, if a good hhas no or poor substitutes, the demand for it would be inelastic. The consumers will have to buy it whether its price is high or low. This is the case with milk, salt and sugar which do not have good substitutes. Thus, when the price of milk ‘increases, the quantity demanded will not decrease much and when the price falls, the quantity demanded will not increase much, In general, a commodity with more and close substitutes tends to have an elastic demand and one with a few and ‘poor substitutes kas an inelastic demand, 2 Nature of the the important de: of the Income Spent: ‘for a commodity i 1 _ we Pipsumer spends on = 050 — Consumer will buy 64 units at price p + AP 5 + 0,50 = 85.50 f demand is different for of a good falls from €10 to %8. ee nantes demand tibestfcorsseoRnits to! i ia is goods is more clastic ean you ay abgubpaee clistcity’ Srrlts oe eters a ea erat Thee 0 cay of demand in terms of total expenditure method? factors which determine the elasticity of d , "Solution: The main factors are: : 1. Availability of Substitutes: The mos important determinant of price elasticit of demand is the number and kind « substitutes available for a commodity. a commodity has many close substitute.antity demanded % Change in quantity demanded 5 Hence, % change in quantity demanded Problem 7: The price elasticity of demand is 05. The % change in quantity is 6. What is the % ‘% Change in quantity demanded Problem 6: Price cls of demand ofa good ig (LAL a given price the 60 units of the 3004. How man dapper mane 4 sini ia the price of a com, io an increase in qt g7 ap 2 100 1010! ofa de 2Q 20 = 100 ' “ g-50 fe price = 50 units: at the price of €4 per unit. The price rises a, asa resultits demand falls to 75 units. The prc. elastity of demand of that good is (1), Fig, out the new price. Solution: Here, P = 4, Q = 100, AQ = 75 - 100 =_ (demand falls by 25), e, = (-)1 canary consumer buys = eee gt Pins AP 7 AP=1 Nee thes “4s 1e Re old price + j - quantity demanded before change problem 10: 109 units of a g00d are demangy solution: Here, P= 5,2 = 80 falls by 16 units), poe 2 oO = 2 mhag > &=%3 => wPH1 Consumer wil =5+050-%5. Problem 13: P1 As a result, it 90 units. What of demand in Solution:-point, ual, unitary at the mid-point and less thang, (inelastic demand) at any point belay 9 (1) At point A (where the demand curve touches the vertical axis) «ata ~ Lite segment below A ine segment above A AB © 7 ininty (2) FRANK ISC ECONOMICS-X!Eo feature of the q vo ae 8 ste PO elasticity ora Giese Tat is method of measures Jepend on the uniee i calcu roblem. T irhat i doer antty of demand ~ what of ICA, - mem es of peel — OF the meagan AE og cateulati SEs of ies Sper in Indian rupees OF in US dog | OTM foemmula peta reteset | risa unites and the quantity d 2] Nar different goods regardless oft? a eet pe OF Guage ne of he method aed is » major advantage of measurement q jy) clasticty © clasicity by percentage method. the ae See ample Let us calculate elasticity of dem |__ °° "OETA on the by using the percentage method by taking, Vows paid nd the quantity e., TE = P « Q) S z imerical example. ‘elasticity of demand, we must kep one thing "merical exampl 7 I i enathemicaly ae price __ Suppose the price of the commodity falle ins Iam sdasticty of demand is2 negate number because €50 10 £40 and the quantity demanded increas | expenditure, P 2 “Shnepative slope of the demand curve. In view of from 100 units to 150 units. : cocina a | of a commodity a %6, the total exper According t elasticity of di considering the incurred on a con Q= 100 AQ = 150 ~ 190 = 59 Pe 50 AP = 50 -40 = 19 BS a precise and Large, “xact measure of elasticity. aft ‘ ee Hop Price elasticity of ae ‘ cars foe . FM alle value nae SésHve to changes BY using this; Sensitive tp vu’ ‘dicates that demand iyi ; ae Brbles of ug 8S: However, a ba Percentage fe percentage method 1. Elastic | '8° depends on the of the ,4m its price, the elasticity of demand 4s greater than sanitary, The elasticity fof demand here is greater than unity. Demand is said to be relatively elastic here. For example, if «fallin the price ; aD ker! I\ 4 | Z Fd | _ <4 | 4 | 5 ak ° omy # Reet: (hey res ne 1 nga Pen Bucy Domed that demand for this good is rota inelastic. For instance, if a fall in the of a commodity by 10 per cent an increase in quantity demandeq per ent the demand is inelastic oy bt It is only in the three excepti F the commodity by 10 per cent causes turve Dy is inelastic between C angy i" Panels (, (i and (i) of an increase in amount demanded by because the percentage change j curve has the same elasticity 15 per cent, the demand is sid to be denis tr 00, 9 O08 a quantiy astc. Generally the demand for the perntage change in pres es iBeods is elastic in nature. In Fig 1 i) oo Price from py, demand curve D, is elastic between A 'y Generally, the demand for 2° 8 and B because the rs cama inelastic, Elasticity of demand for Sean demand tom 00,1 441 summarises the d different. It is important to ee a hep ta ae 4 * types of diy ee iption of thes demand in order to compar F © OP, Noted that _ of different goods. The 5. Inelastic y 1 hay i the demand curve nee _ Ss a ape Demend is acetic Ao na tt? eBcty over ins eae Reed of demand can be looked Bl domena oma i eat More elastic at the Re, © point elasticity and (i Decent me eat sal istic a the lower range Are, | _() Point Elasticity: W se "ist aiy yen ne cune yc vnward sloping stra demand is measure sat P28 elasticity that wes te on a demand cu Price axis tg Varies from Pie elasticity, In Fig. 7 the elasticity of a ELASTICITY oF DEMANDined in the last chapter, the law of Bt states that the amount demanded of @ fs inluenced significantly by the price the commodity. But the law of demand tells us nly about the direction of change in demand for ‘2 commodity in response to change in its price. It simply states that change in price and change fn quantity demanded move in the opposite direction. Thus, the law of demand makes a (guditatce statement only. It does not tell us about the magnitude of change in quantity demanded in {o.a change in price. In other words, if does not tell us by what amount the quantity demanded of a commodity will change in response ‘to a change in its price. The exten! to which the ‘demand for diferent commodities responds to price differs. For example, the demand for a measure of how sensitive the cof a commodity isto change in any of ecg ‘goods and change in consumers nome. There are as many types of elas demand as there are types of economic ag determining the demand. However, thew three main types of elasticity of demand ray 1. Price elasticity of demand, 2. Cross day fof demand, 3. Income elasticity of demand Elasticity of Demand) [Price —] [Tncome | [Crow Elasticity | | Elasticity || Eastcty |of Demand) |of Demand) |of Of these three types of elastics elasticity of demand is the most imports Therefore, we shall discuss price eas of demand in detail and cross east demand and income elasticity of be discussed briefly. como cg nay fi scampi ae Seomodtis ard ncone st ontty o Price elasticity of demand is a measure of a oa cl ‘much the quantity demanded changes a its price changes. Price a of demand may be defined as ‘the 7 Z Feapoustoeness of quantity demon commodity in response to 4 CHIIS° ™ "ae By degree here we ™ { Therefore, more precisely,