Price elasticity of demand expresses the response of quantity demanded of a good to a change in its price, given the consumers income, his taste and prices of all other goods. In other words, it is measured as a percentage change in quantity demanded divided by the percentage change in price, other things being equal.
Ep = %change in quantity demanded / 5 change in price
= (Change in quantity/ Original quantity) * (Original Price / Change in price)
There are a number of factors which determines the price elasticity of demand. Some of them are discussed as follows –
1. Price of the commodity: Ceteris Paribus (i.e. other things remaining unchanged) the demand for a commodity is inversely related with the price of a commodity. Thus as the price of a commodity increases the demand for the commodity also increases and vice versa.
2. Price of Related goods: Related goods can be of two types –
(1) Complementary Goods
(2) Substitute Goods.