Price Elasticity of Demand

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1 Manipal Centre for European Studies, Manipal University, Manipal

Analysis on Price Elasticity of Demand

Abstract
The price elasticity of demand is a factor for an industry, which is existing and the ones emerging in the market, of what is to be the price of the product; considering the demand of the same in the market and whether or not to increase the price to make any more profit sacrificing a marginal amount of sales or a shortfall in the revenue. In an effort to understand the price elasticity of demand concept, a small study was done on the general public across the town Manipal. The study reflected the tendency of people in the town in making varying choices, which helped in the study of price elasticity of demand of Cigarettes. The price elasticity of demand in Cigarettes shows an elastic behaviour with select group of people and some show inelastic behaviour. Thus generalisation of such a concept would be neglecting significant number of population for studying the price elasticity of demand of Cigarettes. Also there were situation wherein we found infinitely elastic behaviour of demand. Though these were fewer in number, it signifies that there exists a mix of various price elastic behaviour of demand. Estimating a threshold value, over which an individual would sacrifice the consumption of cigarettes, by the individual themselves, was easier to analyse the peculiar behaviour of the price change and change in demand of cigarette. The report also gives a brief idea about the substitutes and compliments of cigarettes. The role of price change influences to a greater extent in the demand for these substitutes and compliments. This suggests that the elasticity of demand also is significant when considering compliments and substitutes that also play a role in the market trends. The study clearly explains the various sectors of the society being sensitive to the price change and so is the demand. Two sectors, mainly; 1) Age wise and 2) Gender wise have been studied.

Analysis on Price Elasticity of Demand by B Nitin Mangesh and Anita S, First Semester, MESM, MCES, MU, Manipal

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2 Manipal Centre for European Studies, Manipal University, Manipal

Method
The survey was done on a broader basis, keeping in mind all the age groups and gender and the common public, so as to come to a consensus that every section of the society is included. Since the town Manipal is crowded with student population the survey dominantly shows a student population parameters. This is inevitable, and so is required for an analysis. The figure below shows the distribution of age that is studied. Major aspects required for the analysis has been carefully selected though is not sophisticated but is simple and sufficient. Comparative grounds have been the sole criteria in concluding the analysis in achieving a price elasticity of demand. Also cross price elasticity has been introduced in order to analyse the behaviour of the substitute and compliment.

Distribution of Age
2 2 1010 15 4 20 25 30 15 35 40 45 More

Result
The observations conclude with a positive result. The market faces a mixture of various elasticity, namely; 1) Perfectly Elastic, 2) Inelastic or totally Inelastic and 3) Infinitely Inelastic. The reason for such a result is the sample size and population diversity in the town, Manipal. Analyses on the Cross-Price elasticity also provide a clear view on the typical behaviour of demand fall and rise due to change in price of substitute or compliment. Thus it can be concluded that the theories of price elasticity of demand holds good. Analysis on Price Elasticity of Demand by B Nitin Mangesh and Anita S, First Semester, MESM, MCES, MU, Manipal

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3 Manipal Centre for European Studies, Manipal University, Manipal

I.

Elastic behaviour – Males:

Interpretation of the data across two sections namely; 1) Male and 2) Female shows that the price elasticity of demand is more elastic across male...
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