Page 122 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-6: Theory of Demand and Elasticity of Demand

is come to know that when price rises from ON to OR then total expenditure decreases to RA from BN Notes
means the change occurs in opposite direction. SC portion of ST curve representing less than unitary
elasticity. We come to know when price decreases from OM to OP then total expenditure decreases
from MC to PD means changes in same direction.

Fig. 6.18

Y
T A
R E > 1
d
N B
Price (`) E = 1
d
M D C
P S E < 1
d
0 X
Total Expenditure

2. Proportionate or Percentage Method

The second method of measuring price elasticity of demand is termed as percentage or proportionate
method. According to this method, for assessment of price elasticity of demand, percentage change
in demand is divided by percentage change in price. Its formula is written as follows—
Change Per cent in Quantity Demanded of X-Commodity
E = ___________________________________________________
d Change Percentage in Price of Commodity

Change in Demanded Quantity

_____________________________
Initial Price

E = __________________________ × 100

d Change in Price

_______________
Initial Demand
(Q – Q) ∆Q
1
________ ___

× 100 × 100

Q
Q
Q
Q

= (–) ___________ = (–) _________

(P P)
___
______ × 100 ∆P
× 100
1

P
P
∆Q
∆Q
P
∆P
___
___
___
___

E = (–) ÷ = (–) ×

d Q P Q ∆P
∆Q
P __
E = (–) × ___

d Q ∆P
Here Q = Initial demanded quantity of commodity; Q = changed demanded quantity; P = Initial price
1
of commodity; P = Changed price; ∆Q = ∆Q – Q (change in demanded quantity); ∆P = P – P = Change
1
1
1
in price; ∆ = Delta (this sign represents change).
Percentage change in quantity of X-commodity is defined as 100 times change in X-commodity
means 100 ∆X is divided by X. For example, if quantity increases to 15 from 10 then we will say that
∆X
5 ___
____
___
∆X = 15 – 10 = 5 and percentage increase in X = × 100 = × 100 = 500 = 50%, similarly percentage

10
X
10
∆P
___

change in price is represented by × 100.

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