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Price elasticity of demand

It explains the degree of responsiveness of quantity demanded of a good to a change in price, given that all other factors influencing demand remain constant.
 
Price elasticity of demand = Percentage change in quantity demanded/Percentage change in price.
 
Symbolically, it can be represented as:
 
Description: 18067.png 
Description: 18088.png 

 

Note: As per the law of demand, there is an inverse relationship between price and quantity demanded. So, price elasticity of demand is negative. However, we ignore the negative sign and only the absolute value is considered to draw conclusions.

 
Example
Price (₹) Quantity
10 500
15 350
 
Solution
Change in quantity = 500 - 350 = 150
 
Original quantity = 500
 
Change in price =15 - 10 = 5
 
Original price = 10
 
Ep = Percentage change in quantity demanded/ Percentage change in price
 
= ∆Q/ ∆PX P/Q
 
= 150/5 x 10/500
 
So, Ep = 0.6 {Relatively inelastic}
 




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