- The price elasticity of demand is the amount by which demand for a given product changes in response to changes in price; specifically, the percentage change in demand that corresponds to a one percent change in the price
How Do I Remember It?
- Think of price elasticity of demand as “sensitivity to price changes.” It’s like a measure of how much consumers react to changes in price by buying more or less of a product.
Real World Example
- For example, if the price of a soft drink, let’s say Pepsi, increases by 10% and the quantity demanded decreases by 5%, the price elasticity of demand would be -0.5, indicating that demand is relatively inelastic. This means that consumers are not very responsive to price changes, and the quantity demanded changes proportionally less than the price change.
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By: Ryan Aquino
