# Price Elasticity of Demand Essay

1625 Words 7 Pages
Definition
Price elasticity of demand is defined as the measure of responsivenesses in the quantity demanded for a commodity as a result of change in price of the same commodity.In other words, it is the percentage change in quantity demanded as per the percentage change in price of the same commodity. In economics and business studies, the price elasticity of demand (PED) is a measure of the sensitivity of quantity demanded to changes in price. It is measured as elasticity, that is it measures the relationship as the ratio of percentage changes between quantity demanded of a good and changes in its price
Interpretation of elasticity
Value Meaning n = 0 Perfectly inelastic.
0 > n > -1 Relatively inelastic. n = -1 Unit (or unitary)
Hence, when the price is raised, the total revenue of producers falls to zero. The demand curve is a horizontal straight line. A banknote is the classic example of a perfectly elastic good; nobody would pay £10.01 for a £10 note, yet everyone will pay £9.99 for it.
When the price elasticity of demand for a good is perfectly inelastic (Ed = 0), changes in the price do not affect the quantity demanded for the good. The demand curve is a vertical straight line; this violates the law of demand. An example of a perfectly inelastic good is a human heart for someone who needs a transplant; neither increases nor decreases in price affect the quantity demanded (no matter what the price, a person will pay for one heart but only one; nobody would buy more than the exact amount of hearts demanded, no matter how low the price is).

Mathematical definition
The formula used to calculate the coefficient of price elasticity of demand for a given product is Conventions differ regarding the minus sign, considering remarks like "price elasticity of demand is usually negative".
This simple formula has a problem, however. It yields different values for Ed depending on whether Qd and Pd are the original or final values for quantity and price. This formula is usually valid either way as long as you are consistent and choose only original values or only final

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