4. Give geometric presentation of degrees of Price elasticity of demand with the help of suitable examples.
Answers
Answer and Explanation:
Price elasticity of demand (PED) measures as fast the quantity of a product is desired in response to a change in price. PED can be classified into three categories based on the degree of responsiveness: elastic, inelastic, and unitary elastic. The demand curve concept can be used to graphically display these groups.
The relationship between a product's price and the quantity that consumers are willing to purchase is represented graphically by the demand curve. Inelastic demand is shown by a steep demand curve, elastic demand is indicated by a shallow demand curve, and unitary elasticity is indicated by a slope of -1 on the demand curve.
- Elastic Demand: It is defined as having a PED greater than 1. In other words, a minor change in a product's price causes a big change in the quantity needed. Customers, in other words, are extremely sensitive to price adjustments. The PED of Coca-Cola is elastic, for example, if the price rises by 10% and the quantity requested reduces by 20% as a result.
- Inelastic Demand : This type of demand exists when the PED is less than 1. In other words, a slight change in a product's price causes a small change in the quantity needed. In other words, customers are less sensitive to price changes. For example, if the price of insulin increases by 10%, and as a result, the quantity demanded decreases by only 5%, then the PED of insulin is inelastic.
- Unitary elastic demand : It is defined as the condition when the PED is equal to 1. This implies that a change in a product's price causes a corresponding change in the quantity required. Customers are therefore neither overly sensitive nor undersensitive to price changes. The PED of a smartphone, for example, is unitary elastic if the price increases by 10% and the quantity required reduces by 10% as a result.
In conclusion, the slope of the demand curve can be used to visualise the geometric presentation of PED degrees. Steeper the demand curve, more inelastic is the demand, flatter the curve, more elastic is the demand, and a curve with a slope of -1 represents unitary elasticity.
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Price elasticity of demand (PED) measures the responsiveness of demand for a product to changes in its price. Geometrically, PED can be presented using a demand curve graph as follows:
PED = % change in quantity demanded / % change in price
Perfectly inelastic demand (PED = 0): In this case, demand does not change at all in response to changes in price. The demand curve is vertical, and the price can be set at any level without affecting demand. For example, life-saving drugs or essential goods like salt, where consumers are willing to pay any price to purchase them.
Inelastic demand (0 < PED < 1): In this case, the percentage change in quantity demanded is less than the percentage change in price. The demand curve is relatively steep, and consumers are less sensitive to price changes. Examples include necessities like bread or gasoline.
Unitary elastic demand (PED = 1): In this case, the percentage change in quantity demanded is equal to the percentage change in price. The demand curve is a rectangular hyperbola. Examples include luxury goods or services like jewelry or restaurant meals.
Elastic demand (PED > 1): In this case, the percentage change in quantity demanded is greater than the percentage change in price. The demand curve is relatively flat, and consumers are highly sensitive to price changes. Examples include discretionary items like vacation packages or high-end clothing.
Perfectly elastic demand (PED = infinity): In this case, demand changes infinitely in response to a change in price. The demand curve is horizontal, and any increase in price will result in no demand for the product. Examples include commodities like wheat or rice, where there are many substitutes available.
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