Price elasticity of demand

 The  Price elasticity of demand is the degree of responsiveness of demand to change in price.
It is the ratio of percentage change in amount demanded to a percentage change in price.
It may be denoted as:-


Ep= % Change in Quantity Demanded / % Change in Price 
       = -∆q÷∆p * p÷q


Ep , the coefficient of price elasticity of demand is always negative because when price changes demand moves in the opposite direction.
It is however customary to ignore the negative sign.


Types of price elasticity of demand

Price elasticity of demand can be of five types. These are:-


1) Unity:- It can be unity when the change in demand is exactly proportional to the change in price. For example 20% change in price will bring about 20% change in demand.


So, Ep= 20%÷20%=1


Unit price elasticity of demand is express diagrammatically in the figure below:


**Draw diagram**


2) Greater than unity or relatively elastic:- This situation arises when change in demand is more in proportion than change in price. For example if change in price is 20%, and the relative change in demand is 40% then:
Ep= 40%÷20%= 2>1

The above situation has been expressed diagrammatically below:-
**Draw diagram**


3) Less than unity or relatively inelastic:- the situation arises when change in demand is proportionately less than change in price. For example when 20% change in price causes 10% change in demand then:- 
Ep= 10%÷20%= 1/2<1


We can explain the situation diagrammatically as:-
**Draw diagram**


4) Zero elasticity or Perfectly inelastic:- It happens when, whatever the change in price there is absolutely no change in demand. 
In such a situation demand is said to be perfectly inelastic.
For example a 20% change in price leads to  zero change in demand then 
Ep= 0÷20%= 0

.
This has been explained in the diagram below:-
**Draw diagram**


5) Infinite demand or perfectly elastic demand:- When an infinitesimal small change in price leads to an infinitely large change in demand then the demand is said to be Perfectly Elastic. Visibly, no change in price causes an infinite change in demand.
Ep= infinity/ 0 = Infinity.


This is expressed in the figure below.
**Draw diagram**







     


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