Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand2 Marks
Question
What is price elasticity of demand?
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Answer
Price elasticity of demand:
The law of demand explains that when other factors of demand are assumed to be constant, as price falls demand expands and as price rises demand contracts. However, this law does not state by what proportion demand expands or contracts. The concept of price elasticity of demand explains this.
Meaning:
A measure that shows the proportion $($extent$)$ to which demand changes with . respect to change in price is called price elasticity of demand. It is denoted by $\varepsilon p$.
Definition:
According to Marshall, the degree of elasticity of demand depends upon the extent of rise in demand because of a fall in price and upon the extent of fall in demand because of a rise in price.
Expression Example:
Let us assume that the price of a good $‘X’$ falls by $1 \%$. This fall leads to a price rise of $5\%$ in demand of good $‘X’$.
Price Elasticity of Demand $(εp) =\frac{\text { Percentage change in demand for } X}{\text { Percentage change in price of } X }$
$=\frac{+5 \%}{-1 \%}$
$=|5|$
Price elasticity of demand i.e. ep is expressed as a pure number and is unit-less i.e. it does not have any unit of measurement such as $%, \ kg$., meter, etc.
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