Elasticity of Demand Examples
The following Elasticity of Demand example
Top Examples of Elasticity of Demand
Let’s see some examples of elasticity of demand to understand it better.
Elasticity of Demand Example #1
Aswath Singh is newly hired economist at State economist ltd. He has been given to work upon a small project on the elasticity of demand and he is asked to identify the situation where irrespective of price change, the demand remains the same.
Mr. Singh while doing research at the topic observed that this would be a situation that is called zero elasticity. In this case, the demand would remain constant irrespective whatever the price be. Below diagram depicts that.
We have a price on Y-axis and quantity demanded on the x-axis where we can see that quantity demanded remains the same irrespective of changes in price.
Hardly there are any practical live examples which will meet this situation. But, there are close examples which can be related to this like daily routine products which are consumed by people irrespective of price changes like salt which is used in daily life to prepare food. There are cases for some products where small changes in prices also don’t affect the quantity demanded but that won’t qualify here as for zero elasticity price can be anything.
Elasticity of Demand Example #2
As per one survey, when the price of potato was 35 per kg the quantity demanded was 20,000 kgs and when the price of potato went up to 42 per kg the quantity demanded was 15,000. You are required to calculate price elasticity for potato, in this case, assuming all other things remaining constant and discuss the type of elasticity that is cited in this example.
The change in price in potato went up by 7 and hence the percentage change in price change of potato was 20%, whereas the quantity demanded decreased by 5,000 and here the percentage change in quantity demanded was -25%.
The formula for calculating demand elasticity is
Price elasticity = -25% / 20% = -0.50
Here, this situation is called elastic demand. This is the situation when the percentage change in quantity demand increases or decreases more than a percentage change in price decrease or increase. The real-life examples could be luxurious products like AC, TV, Smartphones. The graph for this type of elasticity would be steeper.
Elasticity of Demand Example #3
Thomas cook the marketing head of Beauty soap limited wants to test the loyalty of their customers as they want to launch new products in shampoo and wants to analyze whether the customer would opt for same? He decides to first increase the price of the product for a few months and check the quantity demanded and after that decrease the price of the product for a few months and again check the quantity demanded.
After that test, the sales department reported below numbers.
You are required to calculate price elasticity for a beauty soap, in this case, assuming all other things remaining constant and discuss the type of elasticity that is cited in this example.
The change in price in beauty soap went up by 10 and hence the percentage change in price change of beauty soap was 11.11%, whereas the quantity demanded decreased by 2,000 and here the percentage change in quantity demanded was -2% for the 2nd quarter.
The formula for calculating demand elasticity is
Price elasticity = -2% / 11.11% = -0.18
The change in price in beauty soap went down by 5 in the 3rd quarter and hence the percentage change in price change of beauty soap was -5%, whereas the quantity demanded increased by 4,000 and here the percentage change in quantity demanded was 1.02% for the 1st quarter.
Price elasticity = 1.02% / -5% = -0.204
This situation is called as price inelastic, where the percentage change in quantity demanded increases or decreases lesser than the percentage change in price decreases or increases. The real-life examples could be toothpaste, rice, kerosene, etc. The above graph is steeper.
Elasticity of Demand Example #4
The percentage change in ABC product rises by 20% when there is fall in the price of the product by 20% and similarly when the price of the product rises by 20% the quantity demanded falls by the same proportion. You are required to discuss the type of elasticity referred to in this example.
If we compute the price elasticity here we will get the answer as 1. This is the case of unitary elastic, where the percentage change in quantity demanded is the same as the percentage change in price.
This kind of situation is imaginary and doesn’t exist in the real world.
It is crucial to know the concept of demand elasticity in order to understand how the relationship between demand and the price of a good behaves.
If the quantity demanded changes more than the prices, that product will be called as to be elastic. That is the often case for services or the products for which there are many substitutes products or alternatives, or for which the customers or the consumers are comparatively or relatively price sensitive.
When there is a comparatively small change in the demand when the prices change more, the product will be said to be inelastic.
This has been a guide to Elasticity of Demand Examples. Here we discuss its top 4 examples of Demand Price Elasticity Examples along with detailed explanations. You can learn more about economics from the following articles –