Question

What is the difference between price elasticity of demand and elasticity of substitution? Explain the various measures of price elasticity of demand.

Answer 1

The price elasticity of demand shows the percentage in quantity demanded after a percentage in price while other things being equal.
The elasticity of substitution shows to what extent two products can be substituted.It shows the effects of change in demand and supply of two products that are perfect substitutes of each other.
The main methods of measuring the price elsticity of demand are as under
1)Percentage method
2)The expenditure method
3)Point elasticity method

Answer 2

Price Effect, that is, the effect on the quantity demanded on a good due to a change in price, depends upon income effect on the one hand and substitution effect on the other. Similarily, price elasticity demand, which is the relative measure, of the price effect depends upon the income elasticity, on the one hand and substitution elasticity of demand.