Elasticity of Demand

Description
 Price elasticity of demand (PED or Ed) is a measure
of the responsiveness of the quantity demanded of a
good or service to a change in its price.
 Price elasticity of demand measures the
responsiveness of demand after a change in price.
Price Elasticity of Demand 2
• A measure of how a given commodity responds to
changes in price or income.
• ( Price Elasticity of Demand) -PED is a measure of
how much the quantity demanded of a good
responds to a change in the price of that good.
• PED is computed as the percentage change in
quantity demanded divided by the percentage
change in price
Formular
Examples of elasticity of demand
1. Price Inelastic Demand
Quantity demanded does not respond strongly to price changes .
Price elasticity of demand is less than 1.E.g. A 25% INCREASE IN
PRICE LEADS TO A 10% DECREASE IN QUANTITY DEMANDED.

2. Price Elastic Demand

Quantity demanded responds strongly to price changes
Price elasticity of Demand is greater than 1.E.g.A 25% increase in
price leads to a 50% decrease in quantity demanded .
 Examples of Elasticity of Demand
3. Perfectly Price Inelastic
Quantity demanded does not respond to price
changes .E.g. An increase in price leaves the quantity
demanded unchanged .
Elasticity of demand is equal to Zero (ED=0)
As the price of the commodity changes, there is no
change in quantity demanded .
Examples of elasticity of Demand

4. Perfectly Price Elastic

Elasticity of demand is
infinite/immeasurable (ED=&)
A small change in the price of the
commodity leads to infinite/immeasurable
change in the quantity demanded .
5. Unit Price Elastic
Quantity demanded changes by the same
percentage as the price
Elasticity of demand is equal to 1-
( ED=1).E.g. a 25% increase in price leads to a
25% decrease in quantity demanded .
The price of the commodity and the quantity
demanded change by the same percentage .
Examples 1
1. If the price of an ice cream cone increases, due to a sales tax, from
P2.00 to P2.20, and the amount you buy falls from 10 to 8 cones,
then your elasticity of demand would be calculated as :
Examples of elasticity 2
If 50kg of maize is bought at P65 ,what will be the elasticity
of demand when a 60kg of maize is bought at P70?

(50-60)
______ X 100= 0.2X100= 20%
50
_________
70-65 X 100=
_________
65
Example 3