Elasticity of Demand/price elasticity
Price Elasticity of Demand
Price Elasticity of Demand(E_{d}) refers to the Responsiveness of the Quantity Demanded with the changes in the price of the good. It is equal to the ratio of the percentage change in quantity demanded to the percentage change in its price.
There is an inverse relationship between quantity demanded and the price of the good. Accordingly, price elasticity of demand is expressed by negative (-) sign. |
Suppose as a result of rise in the price of commodity from P_{1} to P_{0}_{}, the quantity demanded of the commodity have decreased from Q_{1} to Q_{0}.
Then we have:
Percentage changes in Price = New Price -Old Price divided by old price and multiplied by 100.
Symbolically;: (P_{1}-P_{0})/P_{0})*100 or (ΔP/P_{0})*100
Similarly Percentage changes in Quantity Demanded = New Quantity Demanded-Old Quantitity Demanded divided by Old Quantity Demanded and multiplied by 100.
Mathematically, we know that % change is measured by : (Q_{1}-Q_{0})/Q_{0})*100 or (ΔQ/Q_{0})*100
Now according to the definition of Price Elasticity of demand (Ep) we have: