WELCOME TO ECONOMICS PROJECT PREPARED BY MANOTOSH KUMAR PATI. JAWAHAR NAVODYA VIDYALAYA BAGUDI,BALASORE,ORISSA

A PROJECT ON PRICE ELASTICITY OF DEMAND FOR CLASS-XII (Hum & Com)

Contents Meaning of the Concept Meaning of the Concept Related questions Related questions Types of elasticity of demnad Types of elasticity of demnad Market survey by the students Market survey by the students Mathematical Formula Mathematical Formula Diagrammatic Presentation Diagrammatic Presentation Conclusion Conclusion Acknowledgement Acknowledgement

Elasticity – the concept The responsiveness of one variable to changes in another When price rises what happens to demand? Demand falls BUT! How much does demand fall?

Content related questions If price rises by 10% - what happens to demand? We know demand will fall By more than 10%? By less than 10%? Elasticity measures the extent to which demand will change

Types of elasticity of demand 3 basic types used: Price elasticity of demand Income elasticity of demand Cross elasticity

Market Survey A group of students have visited the different shops such as Grocery shops, Readymade garments shop, Two wheeler show room,Electronics show rooms,Departmental stores as well Super Market.They enquired the prices and quantity of sale of different items of previous week.They also noted down the changes that have taken place in prices of different commodities as well as the changes made in their sale.

Market Survey(Contd) It has been observed that the amount of sale has increased to a greater extent in case of Comfortable and Luxurious commodities,it means these commodities are very much sensitive to their prices,where as incase of necessaries commodities the response was very weak.In other words the former are called as elastic commodities and later are called as inelastic or less elastic commodities.

Price Elasticity of Demand  The responsiveness of demand to changes in price  Where % change in demand is greater than % change in price – elastic  Where % change in demand is less than % change in price - inelastic

Price elasticity of demand Total revenue is price x quantity sold. In this example, TR = £5 £500,000. This value is represented by the grey shaded rectangle. Price Quantity Demanded (000s) Total Revenue 100 £5

Price elasticity of demand Total Revenue Price Quantity Demanded (000s) £3 £ If the firm decides to decrease price to (say) £3, the degree of price elasticity of the demand curve would determine the extent of the increase in demand and the change therefore in total revenue.

Price elasticity of demand The Mathematical formula Ped = % Change in Quantity Demand % Change in Price If answer is between 0 and -1: the relationship is inelastic If the answer is between -1 and infinity: the relationship is elastic Note: PED has – sign in front of it; because as price rises demand falls and vice-versa (inverse relationship between price and demand) ___________________________

Types of Price elasticity of demand Perfect price elasticity of demand Imperfect price elasticity of demand More elastic demand Less elastic demand Unit elastic demand

Perfect elasticity of demand It refers to a situation when a slight change in price leads to a infinite change in quantity demanded.It is called as perfect elasticity of demand. The value of ed=∞

Perfectly inelastic demand It refers to a situation when any change in price of a commodity leads to no change in its quantity demanded. It is called as perfectly inelastic supply. The value of ed=0

More elastic demand It refers to a situation when a small change in price leads to considerable change in quantity demanded. It is called as more elasticity or higher elasticity of demand. The value of ed>1

More elasticity of demand Price (£) Quantity Demanded D Producer decides to reduce price to increase sales % Δ in Price = - 30% % Δ in Demand = + 300% Ped = - 10 (Elastic) Total Revenue rises Good Move! 7

Less elasticity of demand It refers to a situation when a considerable or remarkable change in price leads to a very small change in quantity demanded of a commodity.It is called as less elastic or inelastic demand. The value of ed<1 Less elastic demand curve O X X Y D D P P1 M M1 DEMAND PRICEPRICE

Less elasticity of demand Quantity Demanded 10 D 5 5 % Δ Price = -50% % Δ Quantity Demanded = +20% Ped = -0.4 (Inelastic) Total Revenue would fall Producer decides to lower price to attract sales Not a good move! Price (£) 6

Unit elastic demand It refers to a situation when the percentage change in price and percentage in quantity demaned are equal. The value of ed=1 Unit elastic demand curve O X Y D D P P1 M M1

Conclusion Elasticity of demand is a relative concept that shows direction as well as degree of change in demand It is mainly of 5 types but in real sense commodities are two types i;e more elastic and less elastic. It is helpful to finance minister to levy indirect taxes,producers to decide the price and employers to decide the wages as well as to planners to implement a plan

SOURCE NCERT Text Book Advanced economic theory by H.L.AHUZA google.co.in (images of elasticity of demand) Data collected from different shops and stores

ACKNOWLEDGEMENT * My sincere thanks to * Mr.Chandresh,Regional co-ordinator of Intel Teach to the Future * Mr.Mariapaan,Venue Principal of JNV,Cuttack, * Dealers and Owners of different shops and stores. * Mr.k.C.Shanmugam,JNV,Balasore Who gave me an opportunity to attend the training programme