Price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Widget Inc. decides to reduce the price of its product, Widget 1.0 from $100 to $75. A perfect inelastic demand has an elasticity of 0.
For our examples of price elasticity of demand, we will use the price elasticity of demand formula. Price Elasticity of demand can be defined as a measure of change in quantity demanded to the corresponding change in price. For example if a 10% increase in the price of a good leads to a 30% drop in demand. The elasticity of demand measures the responsiveness of demand to a change in price.It is defined as the percentage change in quantity divided the percentage change in price, such that: where is the quantity post price change; is the quantity prior to price change; is the initial price and is the new price. Calculating Price Elasticity of Demand. If Ped > 1, then demand responds more than proportionately to a change in price i.e. The bakery decides to raise its prices to $2.20, but as consumers look elsewhere because of higher prices, it now only sells 80 loaves. Elasticity of demand is infinity when even a negligible fall in the price of the commodity leads to an infinite extension in the demand for it. If the two goods are complements, like bread and peanut butter, then a drop in the price of one good will lead to an increase in the quantity demanded of the other good. In this article, we will look at the concept of elasticity of demand and take a quick look at its various types. Let us now take an example. Even when the price remains the same, the demand goes on changing. The firm has decided to reduce the price of the product to 350. A change in the price of one good can shift the quantity demanded for another good. 10.1 the horizontal straight line DD’ shows infinite elasticity of demand. Relatively elastic demand, unitary elasticity demand and relatively inelastic demand.

Perfect inelastic demand. Below are the various types of elasticity of demand – 1.

Relatively elastic demand: The elasticity is between -1 and -∞ Unitary elasticity demand: The elasticity is -1 Relatively inelastic demand: The elasticity is between 0 and -1. In other words, the price elasticity of demand is defined as the ‘ratio of percentage change in the quantity demanded to the percentage change in price.
Types of Price Elasticity of Demand.

The demand elasticity basically captures the change in demand for a product due to change in another variable, which may be the price of the product or income of the consumer.