Method Of Measuring Price Elasticity Of Demand (Economics 12 class)
The concept of measurement of price elasticity of demand is very important to measure the degree of elasticity of demand. There are four method of measurement of price elasticity of demand. They are
1. Total outlay method
2. Percentage method
3. Point method
4. Arc method
Today i am writing about Total outlay method. This method is also known as Total expenditure method of the measurement of elasticity of demand.In this method we will evalute the total expenditure of the individual before and after change in price. To explan this method three cases can be seen.
:> Total expenditure= Price x Quantity Demand
T.E = P x D
The three cases to measure Total Outlay Method are,
1. Price elasticity greater than unity (Ep >1)
If the total expenditure increases with the decrease in price of goods and service, it reflects the elasticity of demand greater than unity.
2. Price elaticity equal to unity ( Ep = 1)
If total expenditure made on goods or service does not change change with increases or decreases in price, it reflects the unitary elasticity of demand.
3. Price elasticity less than unity ( Ep <1)
If total expenditure decreases even with the decrease in the price of the commodity, it reflects the elasticity of demand les than unity.
These three condition can be clearly explained with the help of table and given figure:
Fig: Price elasticity of demand by total outlay method.
Case I: It shows the elasticity of demand greater than unity. In this stage, when the price decrease from Rs. 60 to Rs. 50, total expenditure increases from Rs. 60 to 100.
Case II: It shows the unitary elasticity of demand. Here through the price decrease from Rs. 40 to 30, total expenditure is same.
Case III: It shows the elasticity of demand less than unity. Here, as the price decreased from Rs. 20 to 10 total expenditure is also decrease from Rs. 100 to 60.
In the figure, total outlay method and price of the commodity are measured on x- axis and y - axis respectively. ABCD is a demand curve which have 3 parts. AB, BC, BD. Here AB shows the elasticity of demand is greater than unity. Part BC shows the elasticity of demand is equal to unity and the last part CD shows the elasticity of demand is less than unity.
1. Total outlay method
2. Percentage method
3. Point method
4. Arc method
Today i am writing about Total outlay method. This method is also known as Total expenditure method of the measurement of elasticity of demand.In this method we will evalute the total expenditure of the individual before and after change in price. To explan this method three cases can be seen.
:> Total expenditure= Price x Quantity Demand
T.E = P x D
The three cases to measure Total Outlay Method are,
1. Price elasticity greater than unity (Ep >1)
If the total expenditure increases with the decrease in price of goods and service, it reflects the elasticity of demand greater than unity.
2. Price elaticity equal to unity ( Ep = 1)
If total expenditure made on goods or service does not change change with increases or decreases in price, it reflects the unitary elasticity of demand.
3. Price elasticity less than unity ( Ep <1)
If total expenditure decreases even with the decrease in the price of the commodity, it reflects the elasticity of demand les than unity.
These three condition can be clearly explained with the help of table and given figure:
Fig: Price elasticity of demand by total outlay method.
Case I: It shows the elasticity of demand greater than unity. In this stage, when the price decrease from Rs. 60 to Rs. 50, total expenditure increases from Rs. 60 to 100.
Case II: It shows the unitary elasticity of demand. Here through the price decrease from Rs. 40 to 30, total expenditure is same.
Case III: It shows the elasticity of demand less than unity. Here, as the price decreased from Rs. 20 to 10 total expenditure is also decrease from Rs. 100 to 60.
In the figure, total outlay method and price of the commodity are measured on x- axis and y - axis respectively. ABCD is a demand curve which have 3 parts. AB, BC, BD. Here AB shows the elasticity of demand is greater than unity. Part BC shows the elasticity of demand is equal to unity and the last part CD shows the elasticity of demand is less than unity.
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