Explain what Price Elasticity of Demand means. What does it mean to say price elasticity of demand is, for example, 0.39%.
Price elasticity of demand measures the degree of responsiveness of quantity demanded of a good to a percentage change in its price. Price elasticity of greater than one states that elasticity is price elastic as the change in price will cause a greater proportionate change in the quantity demanded whereas a price elasticity of less than one means that the proportionate change in quantity demanded is less than the proportionate change in the price.
It is measured by the formula:
Percentage change in quantity demanded/Percentage change in price
Price elasticity of demand of 0.39 shows that the demand changes by 0.39% per 1% change in its price which means that price elasticity of demand for the good is inelastic.
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