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Discuss the concept of elasticity of demand and its role in making economic decisions.

Discuss the concept of elasticity of demand and its role in making economic decisions.

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Answer - Price elasticity of demand is a measure of a change in quantity demnded or purchased of a product in relation to its change in price. In simple words, price elasticity of demand is the percentage change in quantity demanded divided by percentage change in price.

FORMULA - %change in quantity demanded of a good / %change in price of a good.

  • ROLE OF ELASTICITY OF DEMAND IN MAKING ECONOMIC DECISION.

Elasticity of demand has a major importance in making economic decision as determining price of various factor of production. Factor of production are paid according to the elasticity of demand. In simple language, If demand for factor of production is elastic the price will be low and if demand for factor of production is inelastic price will be high.

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