Академический Документы
Профессиональный Документы
Культура Документы
Price elasticity of demand (PED or Ed) 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). It was devised by Alfred Marshall.
Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity.
Only goods which do not conform to the law of demand, have a positive PED. In general, the demand for a good is said to
be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively
small effect on the quantity of the good demanded.
Definition
It is a measure of responsiveness of the quantity of a good or service demanded to changes in its price. [1] The formula for the
coefficient of price elasticity of demand for a good is:
Two alternative elasticity measures avoid or minimise these shortcomings of the basic elasticity formula: point-price
elasticity and arc elasticity.
Point-price elasticity
One way to avoid the accuracy problem described above is to minimise the difference between the starting and ending prices
and quantities. This is the approach taken in the definition of point-price elasticity, which uses differential calculus to calculate
the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve: [14]
Arc elasticity
A second solution to the asymmetry problem of having a PED dependent on which of the two given points on a demand curve is
chosen as the "original" point and which as the "new" one is to compute the percentage change in P and Q relative to
the average of the two prices and the average of the two quantities, rather than just the change relative to one point or the
other.
This method for computing the price elasticity is also known as the "midpoints formula", because the average price and average
quantity are the coordinates of the midpoint of the straight line between the two given points
Determinants
The overriding factor in determining PED is the willingness and ability of consumers after a price change to postpone
immediate consumption decisions concerning the good and to search for substitutes ("wait and look"). [24] A number of factors
can thus affect the elasticity of demand for a good:[25]
Availability of substitute goods
Percentage of income:
Duration:
Brand loyalty:
Who pays:
The concept of elasticity is simply the slope relationship of two variables expressed in
percentage terms. Price elasticity is an important determinant of the price firms will charge for
their product. When demand is price elastic, lowering price will increase total revenue; and
when demand is inelastic, lowering price will decrease total revenue.
Price elasticity of demand is calculated as the ratio of the relative change in quantity demanded to the
relative change in price. Mathematically, price elasticity of demand is just the percent change in quantity
demanded divided by the percent change in price. In this way, price elasticity of demand answers the
question "what would be the percent change in quantity demanded in response to a 1 percent increase in
price?" Notice that, because price and quantity demanded tend to move in opposite directions, price
elasticity of demand usually ends up being a negative number. To make things simpler, economists will
often represent price elasticity of demand as an absolute value. (In other words, price elasticity of demand
could just be represented by the positive part of the elasticity number, eg. 3 rather than -3.) Conceptually,
you can think of elasticity as an economic analogue to the literal concept of elasticity- in this analogy, the
change in price is the force applied to a rubber band, and the change in quantity demanded is how much the
rubber band stretches. If the rubber band is very elastic, the rubber band will stretch a lot, and it it's very
inelastic, it won't stretch very much, and the same can be said for elastic and inelastic demand.
Other elasticities, such as the income elasticity of demand, don't have straightforward relationships with the
slopes of the supply and demand curves. If one were to graph the relationship between price and income
(with price on the vertical axis and income on the horizontal axis), however, an analogous relationship
would exist between the income elasticity of demand and the slope of that graph.