PRICE ELASTICITY OF

DEMAND
Meaning:

Price elasticity of demand is a measure of the responsiveness of the demand for a good to Change in it’s
price, We know that demand and price are inversely related. For some goods The demand changes
considerably even for a small change of price. On other hand , there are some goods for which the
demand is not affected much by price change.
It is calculated by dividing the percentage change in demand by the percentage change in price .
PED= %change in demand for a good / % change in the price of good.
OR
PED=. ∆q/∆p×p/q
Here,. ∆p=change in price
∆q=change in quantity demanded
P= initial price
Q=initial quantity demanded.
CLASSIFICATION OF PRICE
ELASTICITY OF DEMAND
• 1. Perfectly elastic demand:
If the price elasticity of demand is unlimited or infinite(PED= ~),than it is
called perfectly elastic demand. In this case , a very small change in price
leads to an infinite change in demand . Hear, the demand curve (DD) is
horizontal.

2. Perfectly inelastic demand:

If the price elasticity of demand is zero (PED=0),than it is
called perfectly in elastic demand . Here, what ever may be the change in
price , quantity demanded will remain unchanged . For example, a 10% rise or
fall in price does not lead to any change in the amount of demanded . Here,
the demand curve (DD) is vertical.
3. More elastic or relatively elastic :
If the price elasticity of demand is more than one
(PED>1),than it is called more elastic demand. Here, the percentage change
of demand is greater than the percentage change in price . For example, if
the price change by 10 percentage, than the change in demand is 15
percentage. Here, the demand curve (DD) is flatter .

4. Unitary or equal elastic demand:

If the price elasticity of demand is equal to one (PED=1) than it
is called equal elastic demand . In this case the percentage change in
demand and the percentage change in price are equal . For example, when
a 10 percentage change in price cause 10 percentage change in demand.
Here, the demand curve (DD) takes the shape of rectangular hyperbole.
5. Less elastic or relatively inelastic demand:
If the price elasticity of demand is less than one ( PED<1),
than it is called less elastic demand. Here, the percentage change in demand
is less than the percentage change in price, when 10 percentage change in
price cause a 5 percent change in demand . Here, the demand curve (DD) is
steeper.