Saturday, July 28, 2018

Computation of price elasticity of demand

Price elasticity of demand is percentage change in quantity demanded in response to percentage change in price.
For ex :-
If there is increase in price of petrol by 20% which causes the amount of petrol we buy fall by 40% then the price elasticity would be 2.

Determinants of price elasticity of demand :-

i) Substitute products : Factors determining price elasticity of demand depends upon the availability of substitute products. If the price of such product increases, customer will shift to close substitutes.

ii) Income of consumer: Another factor is income of the customer as what portion of income customer want to spent in commodities. The greater the portion of income spent the greater will be price elasticity.

iii) Complementary products: Complementary goods also affects the price elasticity of the demand. For ex- when the price of oil increases, then it mean very small increase in the cost of running any automobile, as oil is used less as compared to petrol.

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