ELASTICITY AND INELASTICITY OF DEMAND

PRICE ELASTICITY OF DEMAND

It is a percent change in quantity demanded by percent change in price of a good.

We can determine whether good is elastic or inelastic by formula.

Price Elasticity of Demand=(% Change in quantity demanded )/(%change in price)

If Ped>1 Good Is Elastic
If Ped=1 Unit Elastic
If Ped<1 Good is Inelastic

For example
Inelastic
If you increase the price of rice by 10% then quantity demand  may decrease by 2% or 3%.If we calculate this

Price Elasticity Of Deamand=(2%/10%)
                                                   =0.2
Here 0.2 is less then 1 it means goods is inelastic.It means if we increase the price of rice there will be very little effect on quantity demanded.Because it is a necessity.Price change is not going to effect too much on quantity demanded.
Petrol is also an example of inelasticity.

Elastic
If you increase the price of speakers by 10% then quantity demand may decrease by  20% to 30%.If we calculate this

Price Elasticity Of Demand=(30%/10%)=3

Here 3 is greater then 1 it means good is elastic.It means if we increase the price of speaker there will be decrease in quantity demanded.Because it is not a primary  necessity of once.Hike in price effects quantity demand.