- It measures the consumer’s

responsiveness or reaction to changes in

the price of the product.

The Formula:

Pde =% Change in quantity demanded__________________________% Change in Price of the commodity

If answer is between 0 and -1: the relationship is inelastic

If the answer is between -1 and infinity: the relationship is elasticNote: PED has (–) sign in front of it because as

price rises.. demand falls and vice-versa (inverse relationship between price and demand)

Comparison of Slope and Elasticity

Elasticity is the measurement of how changing one economic variable affects others.  it is the ratio of the percentage change in one variable to the percentage change in another variable.

Slope is normally described by the ratio of the "rise" divided by the "run" between two points on a line. 

Slope =

Q

____________

PPrice Elasticity =

Q%_____________

% P

Values and Types

of Elasticity

1. Perfectly Elastic Product  (Ped = ∞)2. Perfect Inelastic Product  (Ped = 0)3. Elastic Product  (1 < Ped< ∞)4.Inelastic Product (0 < Ped< 1)5. Unitary Elastic Product  (Ped = 1)

There are basically (theoretically) about five different levels of

elasticity of a product and  they are:

Perfectly Elastic Demand

A perfectly elastic demand is one whos demand curve is a perfectly horizontal line. This means that at the same price for the item, the consumer is willing to buy more and more even at that same price.

 

Perfectly Inelastic Demand

When a price change has no effect on the supply and demand of a good or service, it is considered perfectly inelastic. An example of perfectly inelastic demand would be a life saving drug that people will pay any price to obtain. Even if the price of the drug were to increase dramatically, the quantity demanded would remain the same.

Elastic Demand

Elastic demand means that demand for a product is sensitive to price changes. For example, if the selling price of a product is increased, there will be fewer units sold. If the selling price of a product decreases, there will be an increase in the number of units sold. Elastic demand is also referred to as the price elasticity of demand.

Inelastic Demand

A situation in which the demand for a product does not increase or decrease correspondingly with a fall or rise in its price. From the supplier's viewpoint, this is a highly desirable situation because price and total revenue are directly related; an increase in price increases total revenue despite a fall in the quantity demanded.

Unitary Demand

A unitary elastic product is one in which for a certain amount of change in price, there is the same amount of change in sales. Hence, if I raise the price of a product by 5%, then the recorded fall in sales will be exactly 5% and vice versa.

Prepared by : Jowen Camille Bergantin

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