Explain Price elasticity of demand

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.