To know the responsiveness of the quantity demanded to change in the price, we measure the price elasticity of demand. As all goods are not equally responsive to price changes, rice elasticities for different goods are different. Price elasticity of demand is defined as the percentage change in quantity demanded resulting from one percent change in the price of the good, other things remaining constant. It can also be denoted as:
ep = percentage change in quantity demanded / percentage change in price
It can be observed that the quantity demanded decreases when the price increases and this ratio is negative. However, the absolute value is usually taken and hence Price Elasticity of demand is shown as a positive number. Suppose that the Railway fares are increases b6 6% and the demand for rail travel decreases by 2%.
The price elasticity of demand for rail travel is: - 2% / 6% = 0.33
ep = percentage change in quantity demanded / percentage change in price
It can be observed that the quantity demanded decreases when the price increases and this ratio is negative. However, the absolute value is usually taken and hence Price Elasticity of demand is shown as a positive number. Suppose that the Railway fares are increases b6 6% and the demand for rail travel decreases by 2%.
The price elasticity of demand for rail travel is: - 2% / 6% = 0.33
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