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What is meant by price elasticity of demand? How can we measure the elasticity of demand? Why is an understanding of elasticity of demand important to both business firms and the government?
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Sarah Whiteway What is meant by price elasticity of demand? How can we measure the elasticity of demand? Why is an understanding of elasticity of demand important to both business firms and the government? Price elasticity of demand measures the responsiveness or sensitivity of the quantity demanded of a particular product to changes in its price, ie. If it is very responsive or not responsive at all. The price elasticity of a good can be represented as a figure, where the price elasticity of demand shows the percentage change in the quantity of a good demanded resulting from a 1% increase in its price. For example, it is known that for most goods, a fall in price will cause an expansion in demand, but if that expansion in demand is proportionately greater than the fall in price, then it would be said that quantity demanded is very responsive to a price change,...
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