Economics Presentation - Final

PRICE ELASTICITY OF DEMAND
Presented by:
1. Mariam Abdul Rauf – D019
2. Harshada Shinde – D055
3. Daksha Gole – D021
INTRODUCTION:
• Price Elasticity of Demand is a ratio of

proportionate change in the quantity demanded
of a commodity to a given proportionate change
in its price.
• Formula for calculating Price Ed:
Ed = % ΔQ / % ΔP
TYPES OF PRICE ELASTICITY OF DEMAND
1. 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. The demand curve here is a horizontal line parallel to
the X axis. For example, 10% fall in price may lead to an infinite rise in demand.
• Ed = Percentage change in Quantity Demanded/Percentage change in Price = ∞
Ed = ∞
2) PERFECTLY INELASTIC DEMAND (ED = 0)
• When a percentage in price has no effect on the quantity demanded of a
commodity it is called perfectly inelastic demand. The demand curve here is a
vertical straight line parallel to the Y axis. For example, 20% fall in price will have
no effect on quantity demanded. In practice, such a situation rarely occurs. For
example, demand for salt, milk.
Ed = % ΔQ / % ΔP
Ed= 0 / 20 = 0
Ed=0
3) 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. The slope of the demand
curve here is a ‘rectangular hyperbola’. For example, 50% fall in price of a
commodity leads to 50% rise in quantity demanded.
Ed = % ΔQ / % ΔP
Ed = 50 / 50 = 1
Ed = 1
4) MORE 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 more elastic. The demand curve here has a flatter
slope. For example, 50% fall in price leads to 100% rise in quantity demanded.
Ed = % ΔQ / % ΔP
Ed = 100 / 50
Ed = 2
Ed > 1

5) LESS ELASTIC DEMAND (ED < 1)
• When a percentage change in price leads to less than proportionate change in the
quantity demanded, demand is said to be less elastic. The demand curve here has a
steeper slope. For example, 50% fall in price leads to 25% rise in quantity
demanded.
Ed = % ΔQ / % ΔP
Ed = 25 / 50
Ed = 0.5
Ed < 1
DETERMINANTS OF PRICE ELASTICITY OF
DEMAND
1. Availability of close substitutes
2. Necessities and Luxury Goods
3. Income of the consumer
4. Time Period
5. Number of uses of a commodity

IMPORTANCE OF PRICE ELASTICITY OF
DEMAND
1. PRICE DISCRIMINATION.
Price discrimination is when the same products are sold at different prices to different groups of
customers or in different parts of the market. When the elasticity of demand for the monopolist’s
product is different in different sub-markets, the monopolist can make money by setting different
prices for each sub-market. Products whose demand is less elastic can be charged more than
those whose demand is more elastic.
2. IMPORTANCE IN FOREIGN TRADE.
"Elasticity of demand" is crucial in international trading. Devaluing the currency can improve the
balance of payments. It works if the country's export and import demand is flexible. Devaluation is
helpful for price-sensitive exports and imports. International commerce benefits a country when: a] it
sets low prices for exports whose demand is price elastic and high prices for exports whose demand
is inelastic; and b]the demand for imports is inelastic when prices go down and inelastic when prices
go up. The flexibility of each country's export and import demand affects trade conditions. If
people's tastes don't change, the selling country will benefit from trade.
3. PARADOX OF POVERTY.
Farmers get poor when they have a very good harvest. This is called the "Paradox of Poverty." This
paradox is easy to understand because the demand for most farm products is not very flexible. Since
demand isn't flexible, when there are bumper crops, the prices of farm goods drop sharply because
there are so many more of them. Due to a sharp drop in prices, farmers make less money even when
they sell more. This paradox of poverty is the reason why prices of farm products need to be regulated
and kept under control. Because the demand for farm products does not change much, the government
sets the minimum prices for farm products. So, the idea of "elasticity of demand" helps the government
figure out how to handle agriculture.
4. DUMPING.
Dumping refers to an instance of international price discrimination that takes place when the price of
a product when sold in the market of the importing country is lower than the price of that product on
the market of the exporting country.
5. DETERMINING GOVERNMENT POLICIES
The idea of the elasticity of demand serves as the foundation for the government's taxation policy.
While planning new taxes, finance minister takes into consideration the Elasticity of Demand. The
goods whose demand is generally inelastic will have a higher tax placed on them because the tax will
not have a significant impact on the demand for such commodities, and vice versa.
CASE STUDY
NETFLIX:
Netflix is one of the businesses that has employed the

price elasticity of demand method. Netflix's entertainment
offerings have undergone multiple revisions, and its
present pricing strategy is the result of several attempts to
alter the price in order to capture a greater worldwide
market share.
THANK YOU FOR PATIENT
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PRICE ELASTICITY OF DEMAND

• Price Elasticity of Demand is a ratio of

• Formula for calculating Price Ed:

1. PERFECTLY ELASTIC DEMAND (ED = ∞)

• Ed = Percentage change in Quantity Demanded/Percentage change in Price = ∞

• When a percentage change in price leads to a proportionate change in quantity

• When a percentage change in price leads to more than proportionate change in quantity

1. Availability of close substitutes

2. Necessities and Luxury Goods

3. Income of the consumer

5. Number of uses of a commodity

Netflix is one of the businesses that has employed the

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