Price Elasticity of Demand
The percentage change in the demand for a commodity because of the percentage change in its price is known as the Price Elasticity of Demand. In other words, Price Elasticity of Demand is the degree of responsiveness of demand for a commodity with reference to changes in the price of such commodity. For example, +1.5 price elasticity of demand means that if there is a one percent rise in the price of a commodity, it will lead to a 1.5 percent fall in its demand, or a one percent fall in the price will lead to 1.5 percent rise in the demand. Price is the most important determinant of demand; therefore, price elasticity of demand is also known as Elasticity of Demand, Demand Elasticity, or Elasticity.
An important fact about Price Elasticity of Demand is that, while keeping other factors constant, it establishes a quantitative relationship between the price of a commodity and its quantity demanded. Also, if the value of price elasticity of demand is high, it means that the change in the price of the commodity will have a larger impact on the quantity demanded.
A change in the price can result in a small change in demand for some goods and a greater change in demand for other goods. For example, if there is a 20% fall in the price of two commodities X and Y, and 5% and 15% rise in their demand respectively, it would mean that Good Y is more elastic as compared to Good X, as there is a high rise in the demand for Y as compared to X.
Price Elasticity of Demand is determined by two methods: Percentage Method and Geometric Method.
Methods of Measuring Price Elasticity of Demand: Percentage and Geometric Method
The quantity of a good or service that a consumer is willing and able to purchase at different price levels available during a given time period is known as Demand. Generally, demand is interchangeably used with want and desire; however, in economics these terms are different. Desire is just a wish of a consumer to purchase a commodity even though he is unable to buy it. However, demand is a consumer’s desire to purchase a commodity, provided he is willing to spend and has sufficient purchasing power.
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