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Price Elasticity of Demand

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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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