Solution:
Price elasticity of demand
=
Percentage change in quantity demanded
Percentage change in price of the commodity
=
20
( )8
±
= (–) 2.5
[This is to be noted that price elasticity of demand is always a negative number
because of inverse relationship between price and quantity demanded. However,
minus sign is often ignored while writing the value of elasticity.]

Notes
ECONOMICS
MODULE - 6
Price Elasticity of Demand
Consumer's Behaviour
70
Illustration 2
When price of a commodity is
`
10 per unit, its demand is 100 units. When the price
falls to
`
8 per unit, demand expands to 150 units. Calculate price elasticity of
demand.
Solution:
e
d
=
Percentage change in quantity demanded
Percentage change in price of the commodity
Percentage change in quantity demanded =
²
³
150
100
100
50%
100
±
u
Percentage change in price =
( )2
100
( )20%
10
±
u
±
So,
e
d
=
50
( )2.5
( )20
±
±
We can also use the simplified formula for percentage change method.
e
d
=
ǻ
Q
P
×
ǻ
P
Q
=
²
³
150
100
10
8
10
100
±
u
±
=
50
10
( )2
100
u
±
= (–) 2.5
Illustration 3
Price elasticity of demand of a commodity is (–) 2. A consumer demands 50 units
of this commodity when its price is
`
10 per unit. At what price he will demand 40
units of this commodity?
Solution:
e
d
=
ǻ
Q
P
×
ǻ
P
Q

Notes
71
Price Elasticity of Demand
ECONOMICS
MODULE - 6
Consumer's Behaviour
(–)2 =
40
50
10
50
±
u
'
P
–2 =
( )10
10
P
50
±
u
'
'
P
= Re 1 per unit
New price
= 10 + 1
=
`
11 per unit
16.3.2 Geometric Method
This method is also known as ‘point method’. Geometric method is used to
measure the elasticity at a point on the straight line demand curve. Elasticity of
demand is different at different points on the same straight line demand curve.
According to the geometric method, elasticity of demand at any point of a straight
line demand curve is measured as a ratio of lower segment of the demand curve
and upper segment of the demand curve
e
d
=
Lower segment of the demand curve
Upper segment of the demand curve
Let us consider a straight line demand curve AB at which elasticity of demand is
to be measured at point C, D, M, N, and P (Fig. 16.5).
Quantity demanded
Price
0
Y
X
C
D
M
N
P
ed =
¥
ed = 1
ed > 1
ed = 1
ed < 1
Fig. 16.6

Notes
ECONOMICS
MODULE - 6
Price Elasticity of Demand
Consumer's Behaviour
72
M is the mid- point of the demand curve AB.
So,
e
d
at point M =
Lower segment of the demand curve
Upper segment of the demand curve
=
MP
1
MC
(Because MP= MC)
e
d
at point N =
NP
NC
Point N is below point M so NP is less than NC and elasticity will be less than one.
e
d
at point P =
0
0
PC
(Here lower segment is 0)
e
d
at point D =
DP
DC
Point D is above point M. So, DP is more than DC. Elasticity at this point will be
more than one.
e
d
at point C =
CP
0
f
(Upper segment is 0)
So, we can conclude that elasticity at mid- point of a straight line demand curve
will be 1, elasticity at every point below the mid- point will be less than one and
elasticity at every point above the mid- point will be greater than one.

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- Fall '17
- Farji
- Microeconomics, Supply And Demand, Utility, Consumer