The price elasticity of demand is the percentage change in the quantity demanded of a good or service by the percentage change in the price. In other words, the price elasticity of demand is the rate at which the demand increases or decreases with the corresponding change in price.
The demand for a product can either be elastic or inelastic. When the change in demand is seen to be proportionately larger in comparison to the change in price, then it is said to be elastic. When the change in demand is smaller than the change in price, then it is said to be inelastic.
The slope of the demand curve is the price elasticity of demand. As the demand curve steepens, there is a rapid change in demand, which shows elasticity. Whereas a flatter curve leads to the change in demand at a slow rate, thereby denoting inelastic demand.
Mathematically, the price elasticity of demand is represented as follows:
Price elasticity of demand (PED) = %∆ in Qd/%∆ in P
%∆ in Qd = Percentage change in the quantity demanded
%∆ in P = Percentage change in price
The PED or price elasticity of demand is always negative. In other words, it means that there exists an inverse relationship between the price and the demand.
The value of PED, which is less than one, is considered as relatively inelastic demand, while a value more than one suggests relatively elastic demand.
This article was about the price elasticity of demand formula, which is a very important concept for determining the elasticity of demand. For more such interesting concepts on economics for class 12, stay tuned to our website.