The variation in demand in response to a variation in is called the price elasticity of demand. It may also be defined as the ratio of the percentage change in demand to the percentage change in price of particular commodity.Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
Example:
Petrol has few alternatives because people with a car need to buy petrol. For many driving is a necessity. There are weak substitutes, such as train, walking and the bus. But, generally, if the price of petrol goes up, demand proves very inelastic.
Diamonds-Bought very infrequently, diamonds are the ultimate luxury with few exact alternatives. You could buy other precious gems, but others may not have the same allure as diamonds. A cut in price wouldn’t increase demand very much.
Peak rail tickets-For commuters who rely on the train to get to work in London, demand will be very inelastic. If the price of fares from Surbiton to London increase, demand will only fall by a small amount. The alternatives for commuting into London, such as driving are limited.
Cigarettes-If cigarette tax increases and the price of all tobacco increases, demand will be inelastic because many smokers are addicted and don’t have any alternatives to keep buying.
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