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Unit-6: Theory of Demand and Elasticity of Demand

Notes
Fig. 6.17

Y

D E < 1
Price (`) P M

P 1 N
2
D
0 X
Q Q
1 2
Quantity

6.13 Measurement of Price Elasticity of Demand

It is come to know from measurement elasticity of demand, demand of any commodity is (i) Unitary or
(ii) Greater than Unitary (iii) Lesser than Unitary. There are many methods of measurement of elasticity
of demand—
1. Total Outlay or Total Expenditure Method

2. Proportionate or Percentage Method
3. Point Elasticity Method
4. Arc Elasticity Method Graphic Method

5. Revenue Method

1. Total Outlay or Total Expenditure Method

Total Expenditure Method of measurement of elasticity of demand was invented by Dr. Marshal.
According to this method, it should know that total expenditure done in which direction on change in
price of commodity for the measurement of elasticity of demand—
(i) When there is no change in total expenditure on increase or decrease in the price of commodity
then elasticity of demand will be equal to unitary (E = 1).
d
(ii) When total expenditure increases on decreasing the price of commodity and decreases on
increasing the price of commodity, means total expenditure moves in opposite direction to the
change in price then elasticity of demand will be greater than unitary (E > 1).
d
(iii) When total expenditure decreases on decreasing the price of commodity and increases on
increasing the price of commodity, means total expenditure moves in that direction in which
the price changes then elasticity of demand will be less than unitary (E < 1).
d

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