Price Elasticity of Demand

Running Head: PRICE ELASTICITIES
PRICE ELASTICITY OF DEMAND
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PRICE ELASTICITIES 2
Price elasticity of demand is a phrase that is used to refer to the economic measure of the
alteration in the quantity of product which is demanded or purchased in relation to the change in
its price. In mathematical terms; Price elasticity of demand = the percentage change in the
quantity demanded/the percentage change in the price. Price elasticity explains how changes
occur in either demand or supply given the changes in the prices. Some goods, for example, are
highly inelastic in that, their prices are almost rigid given the changes in the supply and demand.
People will, for instance, need to buy gasoline so that they can travel to work. If the price of
gasoline changes, then people will still demand the same amount of gasoline. Other goods are
highly elastic in that their changes in price causes a great change in demand and supply. Given
that the price elasticity of a quantity of a good demanded varies with the price change, then the
good is said to be elastic in that if price changes by say +5, then the demand fall by -10. Given
that the change in the amount necessitated is the same as the adjustment in price, then the
elasticity is said to be unitary. If the quantity purchased then changes less than the change in
price say the quantity of a good demanded changes by -5, then the price changes by +10, then the
good in question is said to be inelastic.

PRICE ELASTICITIES 3
Unitary Price Elasticity Is As Shown In the Diagram Below
(Pigou, 2016).

PRICE ELASTICITIES 4
(Pigou, 2016).
The following discussion shows the factors that affect the price pliability of demand and also its
effects
Accessibility of Surrogates
This is the most important factor that affects the elasticity of demand. Given that the
commodity in question has close substitutes, then demand is elastic. In the case whereby the
price of this commodity goes up, individuals will automatically shift to the close substitutes, and
this will lead to a decline in the measure of that product which increased its price (Coglianese &
Kilian, 2017). The possibility of the existence of a close substitute means that there will be an
increased elasticity of demand for the good. In a case whereby the good in question does not