Published by: Zaya
Published date: 15 Jun 2021
A measurement of responsiveness of quantity demanded due to the change in the price of the commodity is called price elasticity of demand.
i.e.
Ep or ep = Percentage change in Quantity Demanded ÷ Percentage change in Price
OR % ∆Qd/∆P
When there is no response in the demand due to the change in price, it is said to be perfectly inelastic demand. It may be applicable for very low-priced items like a match, envelope, salt, etc.
When, ep = 0, if % ∆Qd = 0
When the percentage or proportionate change in demand is less than the percentage change in price, it is said to be relatively inelastic demand. It is related to the daily consumption of goods or necessities.
When, ep<1, if % ∆Qd< % ∆p
If the percentage change in demand is equal to the percentage change in price, it is said to be unit elastic demand.
When, ep = 1, if % ∆Qd = % ∆
When the percentage or proportional change in demand is less than the percentage change in price, it is said to be relatively elastic demand. It is related to luxury goods.
When ep > 1, if % ∆Qd > % ∆p
When the negligible change in price leads to, infinite change in the quantity demanded, the demand for a commodity is said to be perfectly elastic demand.
When ep = ∞, if % ∆p = 0