Elasticity of Demand - Essay Example

Price Elasti of Demand Price elasti of demand is a term used in economics which was devised by Aldred Marshall. It can be defined as a measure used to show either the responsiveness, or elasticityof the quantity of a good or service demanded till there is a change in its price (Marshall, 1890). Price elasticity of demand is usually denoted as PED or Ed. In other words PED, gives the percentage change in the quantity demanded as a response to a change in price mostly by one percent. It should however be noted that this is based onceteris paribus, which means that all other factors affecting demand are assumed to be held constant.

Such factors include; income, seasons etc.The demand for a good is said to be inelastic if the PED is less than one (< 1): which means that the changes in price in such instances have a relatively small effect on the quantity demanded. On the other hand, demand for a good is said to be elastic if the PED is greater than one (> 1): this means that the changes in price have a relatively large effect on the quantity demanded (Riley, 2012). It is noteworthy that price elasticities are in most cases negative, and only those goods which do not conform to the laws of demand, for instance Veblen and Giffen goods, register a positive PED (Colander, 2010).

How to Calculate PEDThe formula for Price Elasticity of Demand is:PEoD = (% Change in Quantity Demanded)(% Change in Price)ReferencesAlfred Marshall: Principles of Economics, 1890.Geoff Riley: Price Elasticity of Demand, 2012.Colander David. Economics: Macro and Micro; 8th ed., (2010): McGraw-Hill Irwin Publishing.