Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a product to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. The resulting value can be used to classify a product as elastic, inelastic, or unit elastic.
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Elastic: A product is considered elastic if the price elasticity is greater than 1. This means that a change in price will cause a greater than proportional change in the quantity demanded.
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Inelastic: A product is considered inelastic if the price elasticity is less than 1. This means that a change in price will cause a less than proportional change in the quantity demanded.
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Unit Elastic: A product is considered unit elastic if the price elasticity is equal to 1. This means that a change in price will cause an equal proportional change in the quantity demanded.
Price elasticity of demand is an important concept for businesses to understand because it can inform pricing strategies and help predict changes in demand based on changes in price.
