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Define And Explain The Concept

Price elasticity of demand is defined as how demand changes as a result of a change in price. It can be said that if a reduction in price leads to an increase in demand then demand is relatively elastic. Elasticity
is usually negative. There is an alternative scenario where demand will increase as price does so too. This happens only in the case of Giffen goods, where elasticity is positive. The formula for price elasticity of demand is:
Percentage Change in Quantity Demanded
Percentage Change in Price
One determinant of price elasticity is the number and closeness of substitutes there are available for a good. The closer the goods are, the greater will be the price elasticity of demand of that good. The reason for this being that people will be able to switch to the substitutes when the price of the original good goes up. The greater the number of substitutes and the closer they are, the more people will be able to switch, and so the bigger the substitution effect will be......


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Approximate Word Count: 1354
Approximate Pages: 6 (250 words per double-spaced page)

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