Price Elasticity of Demand Video Lecture | Business Economics for CA Foundation

now we have seen the methods to find out
elasticity of demand now let's
understand what does the numbers in
elasticity of demand mean what meaning
do we derive from those numbers let's
say the elasticity of demand is 2 or it
is 0.5 or it is 1 how do I interpret
these numbers what is the meaning of
elasticity at 2 what is the meaning of
elasticity of demand at 1 and what is
the meaning of elasticity of demand at
0.5 but before understanding these
numerical values it is imperative to
understand the types of price elasticity
of demand he types of elasticity of
demand our first perfectly in elastic
German second relatively in elastic
demand
third unitary elasticity for
relatively elastic demand and finally
perfectly elastic demand so we have five
types of elasticity of demand first is
perfectly inelastic demand second
relatively inelastic demand third
unitary elasticity of demand fourth is
relatively elastic demand and finally
you have perfectly elastic demand now
what do we mean by these words perfectly
inelastic demand means a change in price
does not bring about any change in
demand I again go back to my rope this
rope is inelastic however I change my
price that is the force I cannot pull it
so I can say that it is in elastic
likewise when the demand does not budge
the demand does not change by any amount
of change in price we call it perfectly
in elastic demand no change in demand by
any amount of change in price how much
ever the price changes it may decrease
or it may go up the demand does not
change in such a condition we call the
elasticity of demand as perfectly in
elastic demand now have you ever seen or
come across any commodities whose demand
is inelastic sure you must have take
salt for it
now salt is one of the necessities of
humans we do not tend to increase the
consumption of salt if the prices of
salt go down or tend to decrease the
consumption of salt if the prices of
salt go up so we can say that the
elasticity of salt is inelastic salt is
inelastic to a change in price I'll just
show it on graph let's say I was
consuming quantity Q at price P of salt
now when I increase the price to p1 I do
not tend to increase my consumption I
tend to consume same amount of salt so
with an increase in price there is no
change in quantity of salt consumed
quantity of salt demanded let's say I
decrease the price of salt from the
original price and now the price does be
due again we do not change the
consumption pattern of a sort we do not
tend to increase the consumption of salt
so at P to the consumption will again be
Q so if we go on adjusting the price of
salt we will see that the quantity
consumed of salt is not changing and we
get a line which is parallel to y axis
this line is parallel to Y axis thus we
can say when the demand for a product is
inelastic the curve is always parallel
to Y axis the curve
demand will always be parallel to y axis
what do we mean by relatively inelastic
relatively inelastic demand means that
demand is responsive to a change in
price that M on the demand responds to a
change in price but it does not change
as much as the price changes so we can
say a bigger change in price
brings a smaller change in demand a
bigger change in price brings about a
smaller thing in here please note that
the demand is not perfectly inelastic it
is elastic however it is very minutely
elastic so this case is called
relatively inelastic because it is
nearer to being inelastic what do you
think is unitary elasticity of demand
unitary elasticity of demand is when
demand changes in proportion to change
in price that is a change in price
brings about a proportional change in
demand or in other words the change in
price and change in demand in percentage
terms are equal so the answer would
always be 1 and thus we call the
elasticity as unitary elasticity that is
where the elasticity of demand is always
1
change in price brings a proportionate
change in demand
what is relatively elastic Demma
relatively elastic demand is one where
demand shows a big change to a smaller
change in price where a small change in
price brings about a bigger change in
demand small change in price brings a
bigger change in demand the price has
not changed much but the demand has
changed more than proportionate with
price a small change in price is
springing about a bigger change in
demand thus we can say that demand is
behaving elastically the demand is
elastic now so what will be perfectly
elastic perfectly elastic demand is one
where no things in price brings about an
endless change in demand the demand
keeps on changing without the price
being changed now this is a very
difficult situation to understand where
the demand is changing but the change is
not because of price changes because of
other factors and I'll just explain this
you
these are my axes I am currently
consuming quantity Q at price P now what
is happening is my quantity is changing
my quantity is changing however the
price is not changing my quantity is
changing but the price is not changing
which means price is not the reason for
the change in demand demand is being
changed by some other factors and does
we can say that the demand is perfectly
elastic - price where there is an
infinite change in demand because of no
things in price or no change in price
brings an endless change intima in this
case we get the demand curve as being
parallel to x axis the demand curve will
always be parallel to x axis this is my
x axis the demand curve will always be
parallel to x axis