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    Chapter - 2 Demand: Methods of Measuring PED

    Uploaded by

    Ghalib Hussain
    This document discusses the point method for measuring price elasticity of demand. It explains that using the point method, elasticity of demand (ED) is calculated as the lower segment of the demand curve divided by the upper segment at a particular point. An example is provided using a straight line demand curve with price on the y-axis and quantity demanded on the x-axis. The ED is calculated at three points (A, B, C) on the curve and shown to be greater than 1, equal to 1, and less than 1, respectively. The document concludes that ED is equal to 1 at the midpoint, greater than 1 to the left of the midpoint, and less than 1 to the right.

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    Chapter - 2 Demand: Methods of Measuring PED

    Uploaded by

    Ghalib Hussain
    125 views3 pages
    This document discusses the point method for measuring price elasticity of demand. It explains that using the point method, elasticity of demand (ED) is calculated as the lower segment of the demand curve divided by the upper segment at a particular point. An example is provided using a straight line demand curve with price on the y-axis and quantity demanded on the x-axis. The ED is calculated at three points (A, B, C) on the curve and shown to be greater than 1, equal to 1, and less than 1, respectively. The document concludes that ED is equal to 1 at the midpoint, greater than 1 to the left of the midpoint, and less than 1 to the right.

    Original Description:

    Computation of price elasticity of dtemand with the help of Geometric method

    Original Title

    Measurement of Geometric

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    This document discusses the point method for measuring price elasticity of demand. It explains that using the point method, elasticity of demand (ED) is calculated as the lower segment of the demand curve divided by the upper segment at a particular point. An example is provided using a straight line demand curve with price on the y-axis and quantity demanded on the x-axis. The ED is calculated at three points (A, B, C) on the curve and shown to be greater than 1, equal to 1, and less than 1, respectively. The document concludes that ED is equal to 1 at the midpoint, greater than 1 to the left of the midpoint, and less than 1 to the right.

    Copyright:

    © All Rights Reserved
    125 views3 pages

    Chapter - 2 Demand: Methods of Measuring PED

    Uploaded by

    Ghalib Hussain
    This document discusses the point method for measuring price elasticity of demand. It explains that using the point method, elasticity of demand (ED) is calculated as the lower segment of the demand curve divided by the upper segment at a particular point. An example is provided using a straight line demand curve with price on the y-axis and quantity demanded on the x-axis. The ED is calculated at three points (A, B, C) on the curve and shown to be greater than 1, equal to 1, and less than 1, respectively. The document concludes that ED is equal to 1 at the midpoint, greater than 1 to the left of the midpoint, and less than 1 to the right.

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    © All Rights Reserved
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    Chapter – 2 Demand

    Methods of Measuring PED


    1. The Outlay Method
    2. The Percentage Method
    3. The Arc Method
    4. The Point Method

    4. Measurement of Geometric/Point Elasticity Method:


    Geometric method was suggested by Prof. Marshall and is used to measure the
    elasticity at a point on the demand curve. When there are infinitely small changes in
    price and demand, then the ‘Geometric Method’ is used. This method is also known
    as ‘Graphic Method’ or ‘Point Method. Elasticity of demand (Ed) is different at
    different points on the same straight line demand curve.
    In order to measure Ed at any particular point, lower portion of the curve from that
    point is divided by the upper portion of the curve from the same point.

    Elasticity of Demand (Ed) = Lower segment of demand curve (LS) / Upper segment
    of demand curve (US).
    Price Rs. Quantity
    Demanded
    2 600
    4 400
    6 200

    6
    Price
    4

    X Q.D
    200 400 600

    The elasticity at each point on the demand curve can be traced with the help of point
    method as:
    PED = Lower Segment
             Upper Segment
    Elasticity of demand at its midpoint D is equal to unity. At any point to the right of D, the
    elasticity is less than unity (PED < 1) and to the left of D, the elasticity is greater than unity
    (PED > 1). Y
     

    6
    Price
    4

    X Q.D
    200 400 600

    PED(A) = Lower Segment


             Upper Segment

    PED = 600 =3 or PED > 1 = Elastic Demand


    200

    PED(B) = Lower Segment


             Upper Segment

    PED = 600+200/2
    400

    PED = 800/2
    400

    PED = 400 = 1 PED = 1 = Unitary Elastic Demand


    400

    PED(C) = Lower Segment


             Upper Segment

    PED = 200 = 0.333 or PED < 1 = Inelastic Demand


    600
    (1) Elasticity of demand at point D = DG = 400 = 1 (Unity).
                                                         DA     400
     
    (2) Elasticity of demand at point E = GE = 200 = 0.33 (<1).
                                                         EA    600
     
    (3) Elasticity of Demand at point C = GC = 600 = 3 (>1).
                                                          CA    200
     
    (4) Elasticity of Demand at point C is infinity.
     
    (5) At point G, the elasticity of demand is zero.

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