What is Price Elasticity of Demand
Price elasticity of demand is a concept based upon the law of demand. As you know that law of demand describes the inverse relation between the price of a commodity and its quantity demanded. But the law does not describe how much change there is in the quantity demanded due to change in price of commodity. To overcome this need, the concept that comes into existence is called the price elasticity of demand.
The price elasticity of demand is mathematically given as the ratio of percentage change in the quantity demanded of a commodity to a percentage change in its price.
Now let us further discuss some degrees of price elasticity of demand which shows the effect of change in price on quantity demanded in case of different kinds of products. The main degrees of price elasticity are discussed as under:-
The first degree of price elasticity of demand is perfectly elastic demand. When there is infinite change in quantity demanded due to a little change in price of that product; the product’s demand is known as perfectly elastic demand. There is another degree which is opposed to the former case which is known as perfectly inelastic demand. This means that there is no change in quantity demanded whatever may be the change in price of the product. This kind of elasticity is usually seen in the case of necessity goods as our demand does not change for such goods whatever may be the change in price. There is also a situation that can occur in which the percentage change in quantity demanded is equal to the percentage change in price of that product. The situation is said to be called the unitary elastic demand. However there is also a case in which the percentage change in quantity demanded is much higher than the percentage change in price of that product. In such a situation the degree of demand of product is to be called greater than unitary elasticity. Sometimes a situation may arise in which the percentage change in quantity demanded is much lower than the percentage change in its price. This kind of elasticity is called less than unitary elasticity.
The different degrees of price elasticity of demand shows the number of ways the quantity demanded for a product may change with respect to the change in price of a commodity.