Price elasticity of demand: Difference between revisions
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==Definition== | ==Definition== | ||
The '''price | The '''price elasticity of demand''' is defined with the following backdrop: | ||
* The specific good, service, or commodity. | * The specific good, service, or commodity. | ||
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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 price | The price elasticity of demand can also be defined as the reciprocal of the slope of the [[defining ingredient::demand curve]]. | ||
The [[law of demand]] says that the price | The [[law of demand]] says that the price elasticity of demand is zero or negative at all prices. | ||
Price elasticity of demand is sometimes referred to as '''own-price elasticity of demand''' to distinguish it from [[cross-price elasticity of demand]] which measures the sensitivity of the demand for one commodity to changes in the price of another commodity, and is used to judge the extent to which the commodities are [[complementary goods]] or [[substitute goods]]. | |||
Revision as of 23:06, 14 August 2010
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 price elasticity of demand can also be defined as the reciprocal of the slope of the demand curve.
The law of demand says that the price elasticity of demand is zero or negative at all prices.
Price elasticity of demand is sometimes referred to as own-price elasticity of demand to distinguish it from cross-price elasticity of demand which measures the sensitivity of the demand for one commodity to changes in the price of another commodity, and is used to judge the extent to which the commodities are complementary goods or substitute goods.