The price elasticity of demand

Price elasticity of demand:-
It measures how much the quantity demanded of good changes when its price changes.
                                 Ed= % change in quantity demanded

                                             % change in price

• when the price elasticity of good is high, then the good has ‘elastic’ demand.

             -Qunatity demanded respond highly when price changes.

• when the  price elasticity of good is low, then the good has ‘inelastic’ demand.

             - Quantity demand respond little when price changes.

Examples:-

• when the price of some neccessities item (like food, clothes, shoe, prescription drugs) rises, then the demand tend to be ‘inelastic’.

•on the other hand when price of luxury goods (like designer clothes) or substitute goods ( like price of tea rises then people will shift to coffee), rises then the demand tend to be ‘elastic’.

The price elasticity of demand fall under 3 categories:-

1.Elastic demand:-

If 1% increase in price then there will be 5% decrease in quantity demanded.

2.unit elastic demand:-

If 1% increase in price then there will be 1% decrease in quantity demanded.

3.price inelastic demand:-

If 1% increase in price then tere will be 0.2% decrease in quantity demanded.