Price elasticity of demand and supply, Microeconomics

 

Price Elasticity of Demand is explained below:

Price elasticity of demand/require is the percentage change in the quantity demanded with respect to the percentage change in the cost.

Price elasticity of demand can be illustrated by the below written formula:

 

P?d = Percentage change in Quantity Demanded

Percentage change in Price

 

Where ? = Epsilon; universal notation for elasticity.

If, for instance, a 20% rise in the price of a product causes a 10% fall in the Quantity demanded, the price elasticity of demand becomes:

 

P?d = - 10% = - 0.5

20%

 

Price Elasticity of Supply is defined below:

Price elasticity of supply is the percentage change in quantity supplied with respect to the percentage change in the cost of commodity.

Price elasticity of supply can be defined by the below written formula:

 

P?s = Percentage change in Quantity Supplied

Percentage change in Price

 

 

If a 15% increase in the price of a commodity causes a 15% rise in the quantity supplied, the price elasticity of supply will become:

 

P?s = 15 % = 1

    15 %

 

Posted Date: 7/19/2012 3:57:05 AM | Location : United States







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