Friday, July 27, 2018

PRICE ELASTICITY AND REVENUE EFFECT


PRICE ELASTICITY OF DEMAND


Price elasticity of demand is the percentage change in quantity demanded of a good divided by percentage change in price.

PED= dQ\dP*P\Q

“Where (PED) is Price Elasticity of Demand , (d) is demand, (P) is price, (Q) is quantity".

PRICE ELASTIC:- Quantity demand is more sensitive with respective to price.
*When price falls revenue rises. This means that the percentage rise in quantity demanded is more than the percentage fall in price level i.e; price falls and revenue increases.

PRICE INELASTIC:- Quantity demand is less effective with respective to price.
*When price increases revenue also increases. This means that the percentage rise in quantity demanded rises with the percentage rise in price level.i.e; price increases and revenue also increases.

PRICE UNITARY ELASTIC:- Quantity demand changes with change in price .
*When price falls demand also falls and when price increases demand also increases.



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