Elasticity of Demand

Elasticity of Demand

1. PEoD=(%change in quantity demand) (%change in price)

   • Elastic product
     • If PEoD > 1 then Demand is Price Elastic
       • Demand is sensitive to price changes
   • Inelastic product
     • If PEoD < 1 then Demand is Price Inelastic
       • Demand is not sensitive to price changes

2. If PEoD = 1 then Demand is Unit Elastic

3. The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices.

4. As a general rule, appliances, cars, confectionary and other non-essentials show elasticity of demand.