Question

# Explain what Price Elasticity of Demand means. What does it mean to say price elasticity of...

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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