What is price elasticity of demand?
Price Elasticity of Demand is the responsiveness of demand to a change in price. For some goods a change in price will result in a relatively smaller change in demand where as for some goods a change in price will result in a relatively large change change in demand.
Price inelastic demand
If the price of a product resulted in an insignificant (smaller) change in demand,it would be an inelastic product. This is when the change in demand was not as big as the change in price. If the unit is from 0-1 it is price inelastic. Goods that are demand inelastic are generally seen as necessities such as petrol.
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Price Elastic Demand
If the price of a product resulted in a significant change in demand the
product is price elastic. This is when the demand is greater than the
change in price. If the unit is greater than 1 it has an elastic demand.
product is price elastic. This is when the demand is greater than the
change in price. If the unit is greater than 1 it has an elastic demand.
the value of price elasticity of demand
price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price
factors affecting price elasticity of demand
- the availability of substitutes
- degree of necessity
- proportion of income spent on a product
- time period
- degree of necessity
- proportion of income spent on a product
- time period