Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a good to a change in its price. It is defined as:
“The ratio of proportionate change in quantity demanded caused by a given proportionate change in price”.
Formula for calculation:
Price elasticity of demand is computed by dividing the percentage change in quantity demanded of a good by the percentage change in its price.
Symbolically price elasticity of demand is expressed as under:
Simple formula for calculating the price elasticity of demand:
Or, Ed _ _
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Ed stands for price elasticity of demand
Q stands for original quantity.
P stands for original price.
Stands for a small change.
The price elasticity of demand tells us the relative amount by which the quantity demanded will change in response to a change in the price of a particular good. For example, if there is a 10% rise in the price of a tea and it leads to reduction in its demanded by 20% the price elasticity of demand will be:
Ed = -20/+10