OWhat is the definition of price elasticity of demand - Essay Example

Price Elasti of Demand al affiliation: Price Elasti of Demand Prince elasti of demand is a measure used in economics to show the relationship linking an alteration in the quantity demanded of a particular good and a change in the products price. In economics, the term is used when distinguishing price sensitivity where if a small change in a given product price is accompanied by a large change in the quantity demanded then the product is said to have a response to price change otherwise called elastic.

Conversely, a product is inelastic of a huge change in price that is accompanied by a small amount to change in quantity demanded (Jehle, 2001). The formula for the co-efficient of price elasticity of demand for a good is Therefore, it gives a percentage change in quality demanded in reaction to one percent change in price holding another determinant of demand constant (ceteris paribus) (Colander, 2013).Determinants of Price Elasticity DemandFactors that determine the PED are the ability of a consumer after a price change to postpone consumption decisions that concern the good and to search for substitutes.

Among others include the availability of substitute’s goods in the market structure, where the more the close the substitutes are then, the higher and the elasticity. People can simply switch from one good to the other due to a minor change in price therefore availability of close substitutes have a great effect on demand inelastic (Cohen, 2001). Others include the consumer percentage of income that the product’s price represents as people will tend to pay more interest when purchasing the good because of its cost.

Others include the necessity of a good, brand loyalty and the duration that the price change holds in the market (Jehle, 2001).ReferencesColander, D. C. (2013). Microeconomics (9th ed.). New York, NY: McGraw-HillJehle, G. A., & Reny, P. J. (2001). Advanced microeconomic theory (2nd Ed.). Boston: Addison-Wesley.