Measurement of Price Elasticity of Demand Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

this is Professor Hilde grant I'm gonna
work out an example calculating price
elasticity of demand and I'm gonna do
this slightly different than what you
saw in the PowerPoint presentation and
what you saw from the textbook is from
chapter 4 elasticity again this is an
alternative method okay for calculating
your price elasticity and see to see how
it's different I want you to compare
this to the pizza example on slide 6
through 10 amis those same numbers so
here is the equation that I'm going to
use to calculate the price elasticity of
demand so start the main equations right
here equation 1
sorry elasticity is equal to the
percentage change in quantity demanded
divided by the percentage change in
price now this is the same equation that
the textbook starts with but how they go
about calculating those things is a
little different I happen to think this
method is easier for students but you
can as you can see I'm going to get the
same answer so either method it's just
fine I think the best way to do this is
to break it down and to work the top
part of the equation separately from the
bottom and then once you have an answer
for a and for B well then bring them
back together so to calculate the
percentage change in quantity demanded
it'll be equal to Q 2 minus Q 1 divided
by Q 1 plus Q 2 and for this equation Q
1 is the original amount of quantity
demanded Q 2 is the new amount of
quantity demanded once price has changed
equation B for our percentage change in
price is very similar P 2 the new price
minus P 1 the original price divided by
P 1 plus P 2 so now let's see what this
looks like with the actual Pizza example
from those PowerPoint slides and the
textbook so again
we're gonna calculate our percentage
change in quantity demanded divided by
our percentage change in price so let's
start with the percentage change in
quantity demanded and our new quantity
demanded was 11 it originally was 9 so
we have 11 minus 9 over 9 plus 11 11
minus 9 would give us 2 9 plus 11 is 20
and so we would get an answer of 1 over
10 for the percentage change in quantity
demanded will now do the same thing a
very similar thing to calculate that
percentage change in price our new price
is $19.50 our original price was 20
dollars and 50 cents and we'll add them
together on the bottom 1950 - 20 50 is
minus 120 fifty plus 19 50 is 40
important thing to note with this
equation is we're going to take the
absolute value so that means if either
portion we are working on these out
comes out to be negative you're just
gonna make that positive so we find that
our percentage change in price is 1 over
40 ok and again our percentage change in
quantity demanded is 1 over 10 mmm it's
hard to see there it is okay so now
again we're going to put these together
so our elasticity equals 110 over 140
and you can think of this bar here as a
divide sign okay so I could rewrite this
equation as 1 over 10 divided by 1 over
40 remember your basic rules of math
when we divide by fractions we simply
multiply by the reciprocal
for the reciprocal you're just gonna
flip or invert that fraction so we'll
have 1 over 10 times 40 over 1 1 times
40 times 40 1 times 10 equals 10 our
price elasticity of demand for pizza is
4 again if your reference from the
PowerPoint slides to number 6 through 10
you will see a different method slightly
different equations but the same answer