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



References: 1. Economics for Business, Third Edition, John Sloman and Mark Sutcliffe, Pearson Analysis on Price Elasticity of Demand by B Nitin Mangesh and Anita S, First Semester, MESM, MCES, MU, Manipal Page 8

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