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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 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) elastic.
-1 > n > -8 Relatively elastic.
n = -8 Perfectly elastic.
A price drop usually results in an increase in the quantity demanded by consumers
The demand for a good is relatively inelastic when the change in quantity demanded is less than change in price. Goods and services for which no substitutes exist are generally inelastic.
Perfectly Inelastic Demand Perfectly Elastic Demand
Elasticity and revenue
When the price elasticity of demand for a good is inelastic (|Ed| < 1), the percentage change in quantity demanded is smaller than that in price. Hence, when the price is raised, the total revenue of producers rises, and vice versa.
When the price elasticity of demand for a good is elasti ...