Page 119 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes
Fig. 6.15 Fig. 6.16

Y Y
D D
P M
1
E > 1
Price (`) P 1 2 M E = 1 Price (`) P 2 N D
P
N
D
0 X
Q Q
1 2 0 X
Quantity Q 1 Q 2
Quantity

2. Greater than Unitary Elastic Demand: When the total expenditure increases on decreasing the price
of commodity and decreases on increasing the price of commodity, then it is greater than Unitary

Elastic Demand. In Fig. 6.16, DD demand curve is showing greater than unitary elastic demand. It is

shown that when price is OP then total expenditure will be OQ MP . Opposite to it when decreases
1 1 1
to OP then total expenditure will be OQ NP Therefore,
2 2 2.

Area OQ NP > Area OQ MP
2 2 1 1
It means that total expenditure done has increased on decreasing the price of commodity. Therefore,

elasticity of demand is greater than unitary or more elastic.

3. Lesser than Unitary Elastic Demand E < 1: Elastic Demand is lesser than unitary when expenditure
done decreases on decreasing the price of commodity and increases on increasing the price of

commodity. In Fig. 6.17, DD demand curve is showing lesser than unitary elastic demand. It shows

that when price is OP then total expenditure will be OQ MP . Opposite to it, when price is OP
1 1 1 2
then total expenditure will be OQ NP . Therefore,
2
2
Area OQ NP < Area OQ MP
2 2 1 1
It means that total expenditure done has decreased on decreasing the price of commodity. Therefore

elasticity of demand will be less than unitary (E < 1) or less elastic.

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