Question

define the price elasticity of demand and discuss its determinants?



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Answer 1

Answer:

The price elasticity of demand (PED) is a calculation that apprehends the responsiveness of an good quantity demanded to a change in its price. More specifically, it is the percentage change in quantity demanded in response to a one percent change in price when all other determinants of demand are held constant.

Explanation:

• The PED is the percentage change in quantity demanded in response to a one percent change in price.
• The PED is the percentage change in quantity demanded in response to a one percent change in price.
• The PED coefficient is usually negative, although economists often ignore the sign.
• Demand for a good is relatively inelastic if the PED coefficient is less than one (in absolute value).
• Demand for a good is relatively elastic if the PED coefficient is greater than one (in absolute value).
• Demand for a good is unit elastic when the PED coefficient is equal to one.

Key Terms

• elastic: Demand for a good is elastic when a change in price has a relatively large effect on the quantity of the good demanded.
• Unit Elastic: Demand for a good is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price.
• inelastic: Demand for a good is inelastic when a change in price has a relatively small effect on the quantity of the good demanded.

Answer 2

• The price elasticity of demand is the study about how sensitive the quantity demanded for a product is to a change in price.
• When the price of a commodity falls the demand increases and when the price rises the quantity demanded falls as people switch to other products which are a close substitute for the product.  
• The price elasticity of demand varies from one product to another.  
• There are various factors which affect the price elasticity of demand.  
• The availability of close substitute goods or whether the good is a necessity or a luxury are two of the most important factors which affect the price elasticity of demand.