Price elasticity of demand Note class 11 microeconomics chapter 5.

 Chapter: Price Elasticity of Demand

     
The following notes is covered the topics provided in the syllabus of the chapter . For full chapter note scroll down. 


Introduction:

The concept of price elasticity of demand is a crucial tool used in economics to understand how changes in price affect the demand for a product or service. It measures the responsiveness of demand to changes in price.
In this chapter, we will dive into the factors that influence price elasticity of demand and explore different methods for measuring it.

Factors affecting price elasticity of demand:

1. Availability of substitutes:
The availability of substitutes plays a significant role in determining the price elasticity of demand. When there are many substitutes available, consumers are more likely to alter their purchasing decisions in response to price changes, resulting in a high elasticity of demand.

2. Necessity vs. Luxury:
The demand for necessities tends to be inelastic as consumers prioritize purchasing these goods regardless of price changes. On the other hand, luxury goods tend to have a higher elasticity as consumers can easily postpone or forgo their purchase if prices rise.

3. Time:
The time available for consumers to adjust their habits and find alternatives also affects price elasticity of demand. In the short run, demand tends to be more inelastic, as consumers do not have sufficient time to change their consumption patterns. In the long run, demand becomes more elastic as consumers can find substitutes or adjust their preferences.


Measurement of price elasticity of demand:


1. Percentage-change method:
This method calculates price elasticity by comparing the percentage change in quantity demanded with the percentage change in price.
 
The formula for price elasticity of demand using the percentage-change method is:

 Elasticity of Demand = (% change in quantity demanded) / (% change in price) A value greater than 1 indicates elastic demand, between 0 and 1 indicates inelastic demand, and equal to 1 represents unit elasticity.

2. Total expenditure method:
This method analyzes the impact of price changes on total expenditure. When demand is elastic, a decrease in price results in a proportionately larger increase in quantity demanded, leading to a higher total expenditure. Conversely, inelastic demand causes total expenditure to decrease as price decreases.

The formula for price elasticity of demand using the total expenditure method is:


Elasticity of Demand = (% change in total expenditure) / (% change in price) If the value is negative, it implies the good is an inferior good.

Conclusion:
Understanding price elasticity of demand is essential for businesses and policymakers to make informed decisions about pricing strategies and taxation policies. Factors such as availability of substitutes, the nature of the good, and the time horizon influence the elasticity of demand. By employing methods like the percentage-change method and total expenditure method, economists can measure and quantify the responsiveness of demand to price changes, providing valuable insights for market analysis and decision-making.

(The above topics is given by cbse in the syllabus 
Note:  The above notes do not cover the full topics of price elasticity of demand for class 11. The notes provide an introduction to the concept of price elasticity of demand, discuss factors that affect it, and explain two methods for measuring it. However, there are other important topics related to price elasticity of demand that are not covered, such as the different types of elasticity (elastic, inelastic, and unitary), examples and explanations of price elasticity coefficients, and the application of price elasticity in real-world scenarios.

Clich here for full chapter note👇

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