Price Elasticity of Demand


Dr. Marshall has defined price elasticity of demand as below:

"Price elasticity of demand is a ratio of proportionate changes in the quantity demanded of a commodity to a given proportionate change in its price."
Thus, price elasticity is responsiveness of change in demand due to a change in price only. Other factors such as income, population, taste, habits, fashions, prices of substitute and complementary goods are assumed to be constant. Therefore, price elasticity of demand is written as :

Ed = Percentage change in quantity demanded ÷  Percentage change in price

Ed = (∆Q/Q) ÷ (∆P/P)
Where: Q = Original demand
P = Original Price.

∆ Q = Change in quantity demanded. It is measured as the difference between new quantity demanded (Q1) and old quantity demanded (Q)
Thus ∆ Q = Q1 – Q

∆ P = Change in price. It is measured as the difference between new price (P1) and old price (P)
Thus ∆ P = P1 – P

Price elasticity of demand may have five values infinite, zero, unit, greater than one and less than one.