Question

Explain price elasticity of demand

Answer 1

When the price elasticity of demandfor a good is relatively inelastic (−1 < Ed < 0), the percentage change in quantity demanded is smaller than that in price. Hence, when the price is raised, the total revenue increases, and vice versa.

Answer 2

Price elasticity of demand:

It is define as the ratio of % change in demand of commodity divided by % change in price of that commodity.

Methods to measure it:

1. Total expenditure method

2. % method

3. Point elasticity method

Ed = (-) % change in demand divided by % change in price.