A good's price elasticity of demand (, PED) is a measure of how sensitive the quantity demanded is to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others. The price elasticity gives the percentage change in quantity demanded when there is a one percent increase in price, holding everything else constant. If the elasticity is −2, that means a one percent price rise leads to a two percent decline in quantity demanded. Other elasticities measure how the quantity demanded changes with other variables (e.g. the income elasticity of demand for consumer income changes).
Price elasticities are negative except in special cases. If a good is said to have an elasticity of 2, it almost always means that the good has an elasticity of −2 according to the formal definition. The phrase "more elastic" means that a good's elasticity has greater magnitude, ignoring the sign. Veblen and Giffen goods are two classes of goods which have positive elasticity, rare exceptions to the law of demand. Demand for a good is said to be inelastic when the elasticity is less than one in absolute value: that is, changes in price have a relatively small effect on the quantity demanded. Demand for a good is said to be elastic when the elasticity is greater than one. A good with an elasticity of −2 has elastic demand because quantity falls twice as much as the price increase; an elasticity of −0.5 has inelastic demand because the quantity response is half the price increase.
At an elasticity of 0 consumption would not change at all, in spite of any price increases.
Revenue is maximised when price is set so that the elasticity is exactly one. The good's elasticity can be used to predict the incidence (or "burden") of a tax on that good. Various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis.
The variation in demand in response to a variation in price is called price elasticity of demand.
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In economics, elasticity measures the responsiveness of one economic variable to a change in another. If the price elasticity of the demand of something is -2, a 10% increase in price causes the quantity demanded to fall by 20%. Elasticity in economics provides an understanding of changes in the behavior of the buyers and sellers with price changes. There are two types of elasticity for demand and supply, one is inelastic demand and supply and other one is elastic demand and supply.
In economics, the cross (or cross-price) elasticity of demand measures the effect of changes in the price of one good on the quantity demanded of another good. This reflects the fact that the quantity demanded of good is dependent on not only its own price (price elasticity of demand) but also the price of other "related" good. The cross elasticity of demand is calculated as the ratio between the percentage change of the quantity demanded for a good and the percentage change in the price of another good, ceteris paribus:The sign of the cross elasticity indicates the relationship between two goods.
In a demand schedule, a demand curve is a graph depicting the relationship between the price of a certain commodity (the y-axis) and the quantity of that commodity that is demanded at that price (the x-axis). Demand curves can be used either for the price-quantity relationship for an individual consumer (an individual demand curve), or for all consumers in a particular market (a market demand curve). It is generally assumed that demand curves slope down, as shown in the adjacent image.
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