Price Elasticity of Demand
Essay by Piyush Kumar • October 2, 2017 • Course Note • 294 Words (2 Pages) • 927 Views
Price Elasticity of Demand:
Price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price elasticity of demand is a term in economics often used when discussing price sensitivity. If they are directly proportional, it is positive elasticity. If price and demand are inversely proportional, it is negative elasticity.
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.
The following table shows the total demand and price of the rice for the last 15 years.
Year | Total Demand (million tonne) | Price per Kg (Rs) |
2002-03 | 87.61 | 9.7834 |
2003-04 | 79.86 | 10.0731 |
2004-05 | 85.63 | 10.2157 |
2005-06 | 80.86 | 10.4708 |
2006-07 | 85.09 | 10.6732 |
2007-08 | 86.7 | 11.016 |
2008-09 | 90.47 | 12.5204 |
2009-10 | 91.09 | 14.5997 |
2010-11 | 91.51 | 16.3515 |
2011-12 | 90.21 | 17.5962 |
2012-13 | 90.33 | 18.622 |
2013-14 | 94.03 | 20.1759 |
2014-15 | 98.71 | 22.2554 |
2015-16 | 98.23 | 24.4616 |
2016-17 | 98.5 | 25.6111 |
The graph shows the relation between price and demand of the rice over 15 years.
[pic 1]
The following table shows the price elasticity of demand over 15 years.
Year | Total Demand (million tonne) Q | Price per Kg (Rs) P | ∆Q | ∆P | Price elasticity of demand |
2002-03 | 87.61 | 9.7834 | - | - | - |
2003-04 | 79.86 | 10.0731 | -7.75 | 0.2897 | -3.374326066 |
2004-05 | 85.63 | 10.2157 | 5.77 | 0.1426 | 4.827235363 |
2005-06 | 80.86 | 10.4708 | -4.77 | 0.2551 | -2.421330361 |
2006-07 | 85.09 | 10.6732 | 4.23 | 0.2024 | 2.621476586 |
2007-08 | 86.7 | 11.016 | 1.61 | 0.3428 | 0.596746517 |
2008-09 | 90.47 | 12.5204 | 3.77 | 1.5044 | 0.346810022 |
2009-10 | 91.09 | 14.5997 | 0.62 | 2.0793 | 0.047791181 |
2010-11 | 91.51 | 16.3515 | 0.42 | 1.7518 | 0.042840429 |
2011-12 | 90.21 | 17.5962 | -1.3 | 1.2447 | -0.203724317 |
2012-13 | 90.33 | 18.622 | 0.12 | 1.0258 | 0.024116421 |
2013-14 | 94.03 | 20.1759 | 3.7 | 1.5539 | 0.510910864 |
2014-15 | 98.71 | 22.2554 | 4.68 | 2.0795 | 0.507412522 |
2015-16 | 98.23 | 24.4616 | -0.48 | 2.2062 | -0.05417976 |
2016-17 | 98.5 | 25.6111 | 0.27 | 1.1495 | 0.061072654 |
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