Price Elasticity of Demand
Definition
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It shows how sensitive consumers are to changes in price.
Analogy
Imagine you're at a concert and the ticket prices suddenly increase. If many people decide not to buy tickets because they can't afford them anymore, then the demand for those tickets is elastic. But if everyone still buys tickets despite the higher prices, then the demand is inelastic.
Related terms
Cross Elasticity of Demand: Cross elasticity of demand measures how responsive the quantity demanded of one good is to a change in the price of another good.
Income Elasticity of Demand: Income elasticity of demand measures how responsive the quantity demanded is to a change in income.
Substitutes and Complements: Substitutes are goods that can be used as alternatives to each other, while complements are goods that are consumed together. The concept of substitutes and complements plays a role in determining price elasticity of demand.
"Price Elasticity of Demand" appears in:
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Practice Questions (8)
- Which type of demand has a price elasticity of demand coefficient of zero?
- What is the price elasticity of demand coefficient for relatively elastic demand?
- Which type of demand has a price elasticity of demand coefficient of exactly 1?
- Which of the following statements is true about the price elasticity of demand coefficient for normal goods?
- How is price elasticity of demand calculated?
- Which type of demand has a price elasticity of demand coefficient between 0 and 1?
- What is the measure of price elasticity of demand for perfectly inelastic demand?
- If a good has a price elasticity of demand coefficient of -2, what can be concluded?
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