Price elasticity is a broader or connected concept of law of demand and law of supply. In law of demand and law of supply we have studied; as the price changes demand for the product reduces or price increases, demand increases but; we can't determine how much it has been changed or increased in law of demand. Now this elasticity concept can tell us how much other things have been been changed with respect to change in price price in price price change in price price in price price to change in price price in price price change in price price of that product changes.
For example: we can take an example of a restaurant who is good at providing "chicken biryani" all of a sudden they increased their price from Rs-200 to 250 with the same quantity of biryani. So by seing that the regular customers will not wish to go and have biryani. So, by that the 'total revenue' of the restaurant decreased from 300000-250000. Here, the demand curve is 'elastic'.
In same example if the price of 'biryani' increases a little from Rs.200-220 then only less number of customers shifts, due to little changes in price so, "total revenue" will come down to 300000-280000.Here demand curve is inelastic!!
No comments:
Post a Comment