ELASTICITY

INTRODUCTION
The ability of an object or material to resume
its normal shape after being stretched or
compressed; stretchiness.
Ability to change and adapt; adaptability.
Measuring the behavior of demand /Supply
of a product with respect to changing price.

INTRODUCTION
Price elasticity of Demand.
Price elasticity of Supply.

AIM

To Discuss all about price elasticity of

demand

SCOPE
What is elasticity ?
Price elasticity of Demand.
How to calculate Elasticity?
Different types of Elasticity.
Elasticity on Revenue.
Recapitulation.

WHAT IS ELASTICITY
It is a Measure of how much buyers and
sellers respond to changes in market
conditions.

PRICE ELASTICITY OF DEMAND

It is a measurement of how much the quantity
demanded of a good responds to a change in
the price of that good.
P
P1
P2
Qd1 Qd2

PRICE ELASTICITY OF DEMAND

It is the percentage change in quantity
demanded given a percent change in the
price.

Price Elasticity Of Demand =

Percentage Change in Qd
Percentage Change in Price

HOW TO CALCULATE
ELASTICITY
Price Elasticity Of Demand =

Percentage Change in Qd
Percentage Change in Price

P
P1
P2
Qd1 Qd2

HOW TO CALCULATE
ELASTICITY
Example: If the price of an ice cream cone increases from
$2.00 to $2.20 and the amount you buy falls from 10 to 8
cones then your elasticity of demand would be calculated as:

(10 8)
100
20 percent
10

2
(2.20 2.00)
100 10 percent
2.00

2.2
2.0
8 10

HOW TO CALCULATE
ELASTICITY
Example: If the price of an ice cream cone decreases from
$2.20 to $2.00 and the amount you buy raise from 8 to 10
cones then your elasticity of demand would be calculated as:

(8 10)
100
25 percent
8

2.75
(2.00 2.20)
100 9.0909 percent
2.20

2.2
2.0
8 10

HOW TO CALCULATE
ELASTICITY
Midpoint Formula
It is preferable when calculating the price elasticity
of demand because it gives the same answer
regardless of the direction of the change.
Price Elasticity Of Demand =

Change in Qd / Mid point of Qd

Change in P / Mid point of P

(Q 2 Q1 )/[(Q 2 Q1 )/2]
Price Elasticity of Demand =
(P2 P1 )/[(P2 P1 )/2]

(P2 P1 ) X (Q 2 Q1 )
=
(P2 P1 ) X (Q 2 Q1 )

HOW TO CALCULATE
ELASTICITY
Change in Qd / Mid point of Qd

Price Elasticity Of Demand =

Change in P / Mid point of P

(2.0 2.2) (10 8)

2.33
(2.0 2.2) (10 8)

2.2
2.0
8 10

(2.2 2.0) (8 10) 8.4

2.33
(2.2 2.0) (8 10) 3.6

DIFFERENT TYPES OF
ELASTICITY
Perfectly Inelastic Demand
Inelastic Demand
Unit Inelastic Demand
Elastic Demand
Perfectly Elastic Demand

DIFFERENT TYPES OF
ELASTICITY
Perfectly Inelastic Demand
When no change in quantity demanded.
Price elasticity of demand is zero.

Inelastic Demand

Percentage change in price is greater than percentage

change in quantity demand.
Price elasticity of demand is less than one.

Unit Inelastic Demand

Percentage change in price is same as the percentage

change in quantity demand.
Price elasticity of demand is one.

DIFFERENT TYPES OF
ELASTICITY
Elastic Demand
Percentage change in quantity demand is greater than
percentage change in price.
Price elasticity of demand is greater than one.

Perfectly Elastic Demand

When at any price quantity demanded is

zero.
Price elasticity of demand is infinitive.

Perfectly Inelastic Demand

- Elasticity equals 0
Price

Demand

$5
1. An
increase
in price... 4

Quantity
100
2. ...leaves the quantity demanded unchanged.

Inelastic Demand
- Elasticity is less than 1
Price

1. A 25% $5
increase
in price... 4
Demand

Quantity
90 100
2. ...leads to a 10% decrease in quantity.

Unit Elastic Demand

- Elasticity equals 1
Price

1. A 25% $5
increase
in price... 4
Demand

Quantity
75
100
2. ...leads to a 25% decrease in quantity.

Elastic Demand
- Elasticity is greater than 1
Price

$5
1. A 25%
increase
in price... 4
Demand

Quantity
50
100
2. ...leads to a 50% decrease in quantity.

Perfectly Elastic Demand

- Elasticity equals infinity
Price
1. At any price
above $4, quantity
demanded is zero.
Demand

$4
2. At exactly $4,
consumers will
buy any quantity.
3. At a price below $4,
quantity demanded is infinite.

Quantity

ELASTICITY ON TOTAL REVENUE

Inelastic Demand

Total Revenue decreases in case

price falls and revenue increases
in case price rise.
Total revenue Price

ELASTICITY ON TOTAL REVENUE

Elastic Demand

Total Revenue decreases in case

price rise and revenue increases
in case price falls.
1
Total revenue -----------Price

ELASTICITY ON TOTAL REVENUE

Unit Elastic Demand

Total Revenue remains same

irrespective of price change.

RECAPITULATION
What is elasticity ?
Price elasticity of Demand.
How to calculate Elasticity?
Different types of Elasticity.
Elasticity on Revenue.
Recapitulation.

OPEN FORUM

THANK YOU