Price Elasticity of Demand

What is Price Elasticity?

Price elasticity of demand measures how responsive the quantity demanded is to a change in price. It's calculated as the percentage change in quantity demanded divided by the percentage change in price.

Formula

Elasticity Classifications

• Perfectly Elastic (∞): Infinite response to price change
• Elastic (> 1): Quantity changes more than price
• Unit Elastic (= 1): Quantity changes equal to price change
• Inelastic (< 1): Quantity changes less than price
• Perfectly Inelastic (0): No response to price change

Interpretation Tips

• • Higher elasticity = more price-sensitive consumers
• • Lower elasticity = less price-sensitive consumers
• • Luxury goods tend to be more elastic
• • Necessities tend to be more inelastic