Price elasticity & decision making

1. Role of Price Elasticity of
Demand in Decision-Making
Prepared by – Vikash Gupta
PGDM 1st year
Sunstone Eduversity
Faculty – Dr. Monica Gupta

2. Points of discussion
• Types of price Elasticity
Price Elastic
Price Inelastic
Unit Price Elastic
• Importance of Price Elasticity for decision
making

3. Types of price Elasticity
To Understand this concept we will consider three merchant
Elastic Products
News Paper –
Daily Express
Inelastic Products
Diesel
Unit Elastic Product
– Cloth

4. Types of price Elasticity
Price Elastic Product - Daily Express (Ankit Khurana)
A % change in price causes a bigger % change in demand
20
10
45
60
40
3 4 2
90
100
80
60
40
20
0
1 2 3
Total Quantity
Price
Total revenue
Per Day News paper sale
After knowing the price Elasticity of the product Ankit can take decision about price

5. Types of price Elasticity
Price inelastic Product - Diesel (Ayush Sharma)
A % change in price causes a smaller % change in demand
500
588
50 49 51
10 12 9
459
700
600
500
400
300
200
100
0
1 2 3
After knowing the price Elasticity of the product Ayush can make decision to change
in price.
Rs.
Per Day diesel Consumption
Total Quantity
Price
Total revenue

6. Types of price Elasticity
Unit Price Elasticity Product - Cloth (Sonu)
A %change in price there is equal % change in Demand
There is no real example for unit price Elasticity , But can consider cloth as unit
elastic product.
400
2800 2800 2800
500
7 5.6 4.7
600
3000
2500
2000
1500
1000
500
0
1 2 3
Total Qty.
Price
Revenue
After knowing the price Elasticity of the product Sonu can make decision to change in
price.

7. Importance of Price Elasticity for
decision making
• Importance of Price Elasticity for decision making
The business firms considers price elasticity of demand when they take
decisions regarding pricing of the goods. This is because change in the price of
a product will bring about a change in the quantity demanded depending
upon the coefficient of price elasticity
• Price Elasticity can answer following Question
What will be the effect on sales of my firm if I will increase price by 10%?
How much I need to reduce price to get 25% more sale?
• Uses in Economic Policy Regarding Price Regulation and Crop Restriction of
Farm Products

8. Thank You