ECON212: Principles of Microeconomics - 87225

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The Price Elasticity of Demand is used to extent how the rate of response of quantity demanded vicissitudes due to a price increase or decrease. The formula used to calculate the Price Elasticity of Demand (PEoD) is:

PEoD = (% Change in Quantity Demanded) / (% Change in Price).

To calculate the % change in quantity demanded, we use the formula:

QDemand (NEW) - QDemand (OLD) / QDemand (OLD)

To calculate the % change in price, we use the formula:

Price (NEW) - Price (OLD) / Price (OLD)

Elastic goods are delicate to prices since an increase in price will have a superior influence on demand for that good. Inelastic goods are goods that not very price delicate and price changes have little influence on their demand. Examples of inelastic goods are bread, milk, and fuel. These are measured provisions of life and customer will still buy them irrespective of price fluctuations.

The higher the price elasticity, the more delicate consumers are to price changes. A good with a high price elasticity would propose that when the price of that good goes up, customers will buy a proportio