What Is elasticity of demand?


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  • What is Elasticity of demand?
Elasticity of demand, also known as price elasticity of demand (PED) is an economic term used to measure the responsiveness of demand due to a price change of a service or product.

Price Elasticity of Demand is expressed through the following formula:

PED = (%change in quantity demanded) / (% change in price)

  • How does it work?
PED devised by the economist Alfred Marshall, is nearly always negative, with the general thought being that demand for a good is inelastic. This mean that a change in price will have very little effect on the quantity demanded.

However in some cases if demand for a good is classed as elastic then change in price will have a greater effect on the quantity demanded by consumers.

Simply put, this means that the higher the price, the more sensitive consumers will be to price changes. A high price elasticity suggests that when the prices of certain goods/services rise, consumers tend to buy far less. Yet when the price of those goods and services go down, consumers buy a great deal more.

  • Further Reading
Further information on price elasticity of demand can be found in a number of economic textbooks, for example ' The Principle of Economics'. These can be purchased from book outlets such as Waterstones and online via www.amazon.com.

Alternatively it would be recommended to contact your professor or teacher if you require further help with the basic understanding of PED.

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