Question

Explain the concept of price elasticity demand.

Answer 1

• Price elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in price. In simple words, the elasticity of demand is the ratio of the percentage change in quantity demanded of a commodity to a percentage change in its price.
•  Conversely, if the quantity demanded changes very little with a substantial price change, the product is said to have low price elasticity (inelastic).
• Mathematically, PED is calculated as the percentage change in quantity demanded divided by the percentage change in price.
• High elasticity suggests that consumers are more price-sensitive, making it a critical concept for businesses in setting prices and for economists studying market behaviours.