Page 123 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes Illustration 1.

Assume the percentage change in quantity of demand with Remember
the decrease in price of commodity is 10%. Let the elasticity
of demand = (–) 2.5. Percentage method is used in the condition
in which change in price and then change in
Solution: Let percentage change in demand be X. demand is very less.

Percentage Change in Demanded Quantity

Elasticity of Demand = (–) _______________________________________
Percentage Change in Price
X

2.5 = (–) ____

10%
X = 2.5 × 10% = 25%
Answer: Percentage Change in demanded quantity will be 25%

3. Point Elasticity Method

Elasticity of demand on single point of demand curve is called as Point Elasticity.
According to Leftwitch, “Elasticity computed at a single point on the curve for infinitely small
change in price is point elasticity."
Price elasticity on simple demand curve depends on the point on which it is measured or the slope
of demand curve. Therefore, price elasticity will vary on different points of a demand curve. So the
elasticity of demand is measured individually on individual point of demand curve.
Linear Demand Curve: In Fig. 6.19, MN demand curve is a simple curve. Elasticity of demand at
AN
‘A’ point of demand curve will be equal to ____ , which can be calculated by the following method, as

AM
we know that
P __
___

Ed = (–) × ∆Q
Q ∆P
It is known by Fig. 6.19 that,
P = OP (= AQ); Q = OQ (= AP);
∆P = PP (= AB); ∆Q = QQ (= BC);
1 1
AQ BC
∴ E = ____ × ___ ...(i)

d AP AB
QN
BC

Because, ∆ABC and ∆AQN are similar triangles so ratio of their sides will be equal, means ___ = ____
AQ
AB
QN
BC

On placing ____ on the place of ___ in equation (i), we determine,
AQ AB
AQ
QN
____
____

E = ____ × QN = ____ = QN (AP = OQ)
AP
AQ
d AP
OQ
Because ∆AQN and ∆MPA are similar triangles so ratio of their sides will be equal,
QN QN AN Lower Segment

E = ____ = ____ = ____ = _______________

AP
d OQ
AM
Upper Segment
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