Elasticity is the responsiveness to which one variable responds to a change in another variable Price elasticity of demand (PED) measures the responsiveness of quantity demanded of a product to a change in its price. If a relatively small change in price leads to a relatively large change in demand, the product is said to be 'elastic'.
Whereas if quantity demanded is relatively unresponsive to a change in price the product is said to be 'inelastic'.
Price elasticity of demand can be given a numerical value which is just a number and not in terms of any particular unit. The resulting numerical figure will always be a negative number due to the inverse relationship between price and quantity demanded, but can be ignored. This numerical figure can be calculated by:Price elasticity of demand = percentage change in quantity demanded Percentage change in price For example if the price of a product rises from £20 to £24, which is a 20%change and demand falls from 400 units to 300 units, which is a 25% change, the calculation will be:25% = -1.2520%When the percentage change in price leads to a smaller percentage change in quantity demanded price elasticity of demand will be a number between 0 and -1 and the product is said to be 'inelastic'.
On the other hand when the percentage change in price leads to a larger percentage change in quantity demanded price elasticity of demand will be a number between -1 and - infinity and the product is said to be 'elastic' such as the product used in the example above.
If the price elasticity of demand is exactly 1 the product is said to have 'unit'price elasticity of demand. This occurs when a percentage change in price leads to an equal percentage change in quantity demanded.
If a