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price elasticity of demand
(redirected from Price elastic)

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price elasticity of demand

Responsiveness of changes in quantity demanded to a change in price of the product. It is measured by the formula: percentage change in quantity demanded/percentage change in price. For example, if the price of butter is reduced by 10% and the demand increases by 20%, the price elasticity of demand is 2.

Goods with a price elasticity of less than 1 are said to be inelastic. Goods with a price elasticity greater than 1 are said to be elastic. A firm wishing to increase revenue (price x quantity) should increase the price of its products if demand is inelastic. This is because the percentage fall in quantity demanded will be less than the percentage increase in price. Conversely, a firm with an elastic demand for its products should reduce price to increase revenue.



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