Price Elasticity
of Demand
By Crystal Wang
Gregory Chang
Definition
• How responsive demand is to a
change in price
• % change in quantity demanded
% change in price
• Answer>1 means price elastic
• Answer<1 means price inelastic
Diagram
Price
S
Equilibrium
D
Quantity
Diagram
S2
Price
S1
P2
P1
D
Q2
PRICE ELASTIC
Q1
Quantity
Diagram
Price
S2
S1
P2
P1
D
Q2
PRICE INELASTIC
Q1
Quantity
Determinants
• Substitutes
• Percentage of income
• Necessity
Special demand curves
Price
D
P2
P1
Ed=0
Quantity
Special demand curves
Price
P1
D
Ed=∞
Quantity
Special demand curves
Price
D
P2
Ed=1
P1
equidistance
equidistance
Q2
Q1
Quantity