Price elasticity of demand refers to how much the sales of
a product change when the price of that product changes. If the price of the product
goes up and there is a great decrease in the sales of the product, we say that the
demand for the product is elastic. If the price increases and there is not a great
decrease in the sales of the product, we say that the demand for the product is
relatively inelastic.
Here is an actual formula for finding
elasticity more formally:
PEoD = (% Change in
Quantity Demanded)/(% Change in Price)
If
the price elasticity of demand is greater than 1 and less than infinity, we say that
demand for that good is relatively
elastic.
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