price elasticity of demand

 PRICE ELASTICITY OF DEMAND

Price elasticity demand refers to the percentage change in quantity demanded due to a percentage change in the price of a commodity. It is the responsiveness of quantity demanded due to changes in price.

Therefore it is given as,

       Ed =  % change in quantity demanded
                % change in price
 
Symbolically,
        Ed =  %△Q
                  %△P

Where,

         △= percentage change

         P = price of a commodity

         Q = quantity demanded.

Types of price elasticity of demand

1) Relatively elastic demand: when the percentage change in quantity demanded is more than a proportionate change in price, then it is known as relatively elastic demand.

An example of relatively elastic demand is clothes. As price decreases(sales, discount), people may buy more of that stuff.

Therefore for relatively elastic demand changes are more than 1(Ed>1).

Explanation:

A demand curve is flatter in shape which indicates a relatively elastic demand.

Percentage change in quantity demanded = 150

Percentage change in price of commodity = 100 

Therefore,

                 Ed=150/100=1.5

2) Relatively inelastic demand: when the percentage change in quantity demanded is less than a proportionate change in price, then it is known as relatively inelastic demand.

An example of relatively inelastic demand is petrol. As an increase in the price of petrol people may decrease their consumption by a few units, instead of buying 1 ltr they may buy 950ml of petrol. Which is not a great change in the quantity demanded.

Therefore for relatively inelastic demand changes are less than 1(Ed<1).

Explanation:

A demand curve is steeper in shape which indicates a relatively elastic demand.

Percentage change in quantity demanded = 100

 Percentage change in the price of commodity = 120

Therefore,

                 Ed=100/120=0.83

3) Perfectly elastic demand: when no change in price brings infinite changes then it is known as perfectly elastic demand. 

An example of perfectly elastic demand is trend items like fidget spinners when it was in trend there was high demand when they went out of trend no one is buying those stuff. 

Therefore for perfectly elastic demand changes are infinite(Ed=∞).

Explanation:

A demand curve is horizontal to the x-axis which indicates a perfectly elastic demand.

4) Perfectly inelastic demand: when changes in prices bring no changes in quantity demanded then it is known as perfectly inelastic demand. 

An example of a perfectly elastic demand is medicine. Any change in the price of medicine may not decrease the quantity demanded.

Therefore for perfectly inelastic demand changes are zero(Ed=0).

5) Unitary elastic demand: when the percentage change in the price of a commodity is equal to a proportionate change in quantity demanded is known as unitary elastic demand. 

Therefore a change in elasticity demanded is equal to 1(Ed=1)

 Percentage change in quantity demanded = 100

 Percentage change in price of commodity  = 100

 Therefore,

                 Ed=100/100=1