Last updated on June 13th, 2020 at 08:31 pm
Price Elasticity of Demand : Price elasticity of demand measures the quantitative response of demand to a change in price. This is the ratio of percentage change in demand to the percentage change in price. So the price elasticity of demand is,
Here, ep = price elasticity of demand
ΔQ = change in quantity
ΔP = change in price
P = Initial Price
Q = Initial Quantity
Here in the above given equation a negative sign has been used as the relation of price and demand is negative. So to avoid negative values the negative sign has been introduced.
Example : Considering the price of X commodity is falling to $80 from $100 and the demanded quantity is rising to 3000 units from 1000 units. Thus,
P = 100$ Q = 1000 units
ΔP =-20$ ΔQ =2000 units
The price elasticity of demand,
Thus, the price elasticity is 100.