MEANING

Price Elasticity of demand is the rate at which quantity purchased changes with the change in price. It is the ratio of percentage change in quantity demanded to percentage change in the price of the commodity, other factors remaining the same.

E_d= (-) Percentage change in quantity demanded/ Percentage change in price

ACCORDING TO BOULDING

“Price elasticity of demand measures the responsiveness of the quantity demanded of a good to the change in its price.”

ACCORDING TO MARSHALL

“Price elasticity of demand is ratio of the percentage change in quantity demanded to the percentage change in its price.”

ACCORDING TO ANATOL MURAD

“Elasticity of Demand is the ratio of relative change in quantity to relative change in price.”

ACCORDING TO SAMUELSON

“The concept expresses the degree of responsiveness of quantity demanded to change in its price.”

Thus, the measure of the magnitude of change in demand due to a given change in price is known as Price Elasticity of Demand.

DEGREES OF PRICE ELASTICITY OF DEMAND

The various degrees of Price Elasticity of Demand are as follows:

PERFECTLY ELASTIC DEMAND

Perfectly Elastic Demand is one in which a small change in price will cause an infinitely large change in amount demanded. A small rise in the price of the commodity reduces the demand to zero.

E_d= ∞

In this case the shape of demand curve is parallel to horizontal axis.

MORE ELASTIC DEMAND

When the change in demand is more than the change in price, demand is said to be More Elastic Demand. Such demand is also known as ‘Greater than unitary Price Elasticity of Demand.’  

E_d> 1

In this case the demand curve is flatter and gradually sloping.

UNITARY ELASTIC DEMAND

When the change in demand is equal to the change in price, demand is said to unitary elastic demand.

ACCORDING TO MARSHALL

“A commodity has elasticity equal to one if the total expenditure of the consumers on the commodity remains the same even when price changes.”

E_d= 1

In this case, the demand curve is rectangular hyperbola.

LESS ELASTIC DEMAND

When the change in demand is less than the change in the price, demand is said to Less Elastic Demand. Such demand is known as ‘Less than Unity Price Elasticity of Demand.’

E_d <1

In this case, the demand curve is steep and rapidly sloping.

PERFECTLY INELASTIC DEMAND

When there is no change in the demand i.e. the demand remains fixed at a specific level even though there is any change in price, demand is said to be Perfectly Inelastic Demand. In such a situation, rise or fall in price do not affect demand in any way.

E_d=0

In this case, the demand curve is parallel to Y-axis.

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Elasticity of demand	Change in demand	Price elasticity of demand	Law of demand Vs Elasticity of demand
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Types of demand	Managerial economics	Characteristics of managerial economics	Scope of managerial economics
Utility analysis	Law of diminishing marginal utility	Law of equi marginal utility	Consumers Equilibrium
Indifference curve analysis	Consumer equilibrium using indifference curve analysis	Relationship between TP, AP and MP	Law of increasing returns
Law of diminishing returns	Law of constant returns	Returns to Scale	Economies and diseconomies of scale
Concept of costs	Relationship between AC and MC	Traditional theory of costs	Modern theory of costs
Explicit vs Implicit costs	Revenue	Perfect competition	Monopoly
Price discrimination	Difference between perfect competition and monopoly	Perfect Vs Monopolistic competition	Monopoly and monopolistic competition
Product differentiation strategy	Monopolistic competition	National Income in India	Measurement of national income in India
Consumption function	Keynes Psychological law of consumption