Price elasticity of demand: Difference between revisions
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With this backdrop, the price-elasticity at a price <math>p</math> is defined as: | With this backdrop, the price-elasticity at a price <math>p</math> is defined as: | ||
<math>\frac{pdq}{q dp} = (dq/dp) | <math>\frac{pdq}{q dp} = \frac{(dq/dp)}{(q/p)}</math> | ||
In other words, it is the ratio of the rate of change of quantity demand with respect to price, to the ratio of quantity to price. Note that the price-elasticity of demand is a number; it has no units and is independent of the units used to measure the price or quantity demanded. | In other words, it is the ratio of the rate of change of quantity demand with respect to price, to the ratio of quantity to price. Note that the price-elasticity of demand is a number; it has no units and is independent of the units used to measure the price or quantity demanded. | ||
The [[law of demand]] says that the price-elasticity of demand is zero or negative at all prices. | The [[law of demand]] says that the price-elasticity of demand is zero or negative at all prices. | ||
Revision as of 19:55, 14 November 2009
Definition
The price-elasticity of demand is defined with the following backdrop:
- The specific good, service, or commodity.
- A certain set of economic actors who are the potential buyers of that commodity.
- An economic backdrop that includes all the determinants of demand other than the unit price of that commodity.
With this backdrop, the price-elasticity at a price is defined as:
In other words, it is the ratio of the rate of change of quantity demand with respect to price, to the ratio of quantity to price. Note that the price-elasticity of demand is a number; it has no units and is independent of the units used to measure the price or quantity demanded.
The law of demand says that the price-elasticity of demand is zero or negative at all prices.