Price Elasticity - Show the responsiveness of Demand/Supply quantity

Price Elasticity of Demand and Supply

Summary by:

Irwan Muhammad ( 120720140029 )

Price elasticity of demand (PED or E_d) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income)

The higher the price elasticity, the more sensitive consumers are to price changes. A very high price elasticity suggests that when the price of a good goes up, consumers will buy a great deal less of it and when the price of that good goes down, consumers will buy a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on demand.

Elasticities of demand are interpreted as follows:

If PED > 1 then Demand is Price Elastic (Demand is sensitive to price changes)
If PED = 1 then Demand is Unit Elastic
If PED < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)

Price elasticity of supply (PES or E_s) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

PES = (% Change in Quantity Supplied)/(% Change in Price)

The higher the price elasticity, the more sensitive producers and sellers are to price changes. A very high price elasticity suggests that when the price of a good goes up, sellers will supply a great deal less of the good and when the price of that good goes down, sellers will supply a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.

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