<h2 align="center" style="text-align: left;">Measurement of Price Elasticity of Demand</h2>
<h3>a) The Point Method:</h3>
<ol type="i">
<li>
\(E_d = -\cfrac{\Delta Q}{\Delta P} \times \cfrac{P}{Q}\) (for a demand schedule)
</li>
<li>
\(E_d = -\cfrac{\delta Q}{\delta P} \times \cfrac{P}{Q}\) (for a demand function with one independent variable)
</li>
<li>
\(E_d = -\cfrac{\partial Q}{\partial P} \times \cfrac{P}{Q}\) (for a demand function with two or more independent variables)
</li>
</ol>
<h3>b) The Arc Method:</h3>
\(E_d = -\cfrac{\Delta Q}{\Delta P} \times \cfrac{P_1 + P_2}{Q_1 + Q_2}\)
<h3>Example:</h3>
Given the demand function of a commodity estimated as:
\(Q = 100 – 3P\)
Where unit price \((P) = ₦20\).
Compute the price elasticity of demand and interpret your result.
Solution:
Using the point method for a demand function with one independent variable, we have:
\(E_d = \cfrac{-\delta Q}{\delta P} \times \cfrac{P}{Q}\)
From \(Q = 100 – 3P\), we have
\(\cfrac{\delta Q}{\delta P} = -3\)
Substituting into \(E_d = \cfrac{-\delta Q}{\delta P} \times \cfrac{P}{Q}\), we have
\(E_d = -(-3)\cfrac{P}{Q}\)
When \(P = 20\)
\(Q = 100 – 3(20)\)
\(= 100 – 60\)
\(= 40\)
\(\therefore E_d = -(-3) \times \cfrac{20}{40}\)
\(= \cfrac{60}{40}\)
\(= 1.5\)
Since \(1 &lt; E_d = 1.5 &lt; \infty\), this means that demand is price elastic.

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Measurement of Price Elasticity of Demand

Discover the principles behind the behavior of consumers and the factors that affect demand, including determinants of demand, types of demand, elasticity of demand, and its measurement, as well as how to apply price elasticity of demand in real-life situations.


Measurement of Price Elasticity of Demand

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