What is Price Elasticity of Demand?
Price Elasticity of Demand (PED) is an economic tool that measures the change in quantity demanded of a product when there is a fluctuation in its price.
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Price elasticity of demand is the degree of responsiveness of demand of a commodity due to a change in its price.
The mathematical equation to calculate Price Elasticity of Demand is given as:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
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If this formula gives a number greater than 1, the demand is elastic. In other words, quantity changes faster than price.
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If the number comes out to be less than 1, demand is inelastic. In other words, quantity changes slower than price.
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If the number is equal to 1, the elasticity of demand is unitary. In other words, quantity changes at the same rate as price.
