Define price elasticity What do price elasticities of -0.25 and -2.8 mean? Are these numbers different from...
- Define price elasticity
- What do price elasticities of -0.25 and -2.8 mean? Are these numbers different from +0.25 and +2.8, respectively?
- Describe what it is about these two goods that contribute to their respective price elasticities.
Homework Answers
Price elasticity of demand is a measure of the responsiveness of the demand for a good to changes in its price.
Price Elasiticity of demand = Percentage change in Quantity demanded / percentage change in price
Price elasticity of -0.25 means that the demand is inelastic to change in price, whereas price elasticity of -2.8 means that the demand is highly elastic to change in the price of good.
The negative sign arises due to inverse relationship between price and good. ussually we ignore negative sign to find the actual responsiveness of demand for the good to change in its price. thus 0.25 or -0.25 are the same, and the ratio value is more important than sign.
The good which has PED of 0.25 means that the good is necessity good. These goods less sensitive to change in its price. For example power, healthcare and food.
The good which has PED fo 2.8 means that the good is luzury good. These goods are more sensitive to change in its price. For example SUVs
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