Question

What is the price elasticity of demand? Can you explain it in your own words?

Short answer

Price elasticity refers to how a product's quantity demanded or supplied responds to price changes.

Step-by-step solution

Step 1. Introduction

According to the law of demand, a negatie relationship exists between quantity demanded and price for normal goods.

Step 2. Explanation

Price elasticity of demand refers to the extent by which the quantity demanded is influenced by a chnage in price. It is calculated as a percentage change in quantity demanded — or supplied — divided by the percentage change in price.

$$\begin{gathered} Priceelasticityofdemand \\ =\frac{\%∆quantitydemanded}{\%∆price} \end{gathered}$$