A set of graphs shows the relationship between demand and total revenue (TR) for a linear demand curve.
As price decreases in the elastic range, TR increases, but in the inelastic range, TR decreases. TR is
maximised at the quantity where PED = 1.
A firm
When the price elasticity of demand for a good is relatively elastic ( - < Ed < -1), the
percentage change in quantity demanded is greater than that in price. Hence, when the
price is raised, the total revenue falls, and vice versa.
When the price elasti
ther with the concept of an economic "elasticity" coefficient, Alfred Marshall is credited with
defining PED ("elasticity of demand") in his book Principles of Economics, published in 1890.
[20]
He described it thus: "And we may say generally: the elastic
The above formula usually yields a negative value, due to the inverse nature of the
relationship between price and quantity demanded, as described by the "law of demand".
[3]
For example, if the price increases by 5% and quantity demanded decreases by 5%,
rcentage change in price. (One change will be positive, the other negative.) [33] The
percentage change in quantity is related to the percentage change in price by elasticity:
hence the percentage change in revenue can be calculated by knowing the elastic
Price elasticity of demand (PED or Ed) is a measure used in economics to show the
responsiveness, or elasticity, of the quantity demanded of a good or service to a change in
its price. More precisely, it gives the percentage change in quantity demanded in
ompute the percentage change in P and Q relative to the average of the two prices and
the average of the two quantities, rather than just the change relative to one point or the
other. Loosely speaking, this gives an "average" elasticity for the section o
In other words, it is equal to the absolute value of the first derivative of quantity with respect
to price (dQd/dP) multiplied by the point's price (P) divided by its quantity (Qd).[15]
In terms of partial-differential calculus, point-price elasticity of
elasticity of demand if a significant number of substitutes are available, whereas food
in general would have an extremely low elasticity of demand because no substitutes
exist.[29]
Percentage of income: the higher the percentage of the consumer's income
e may say, is great. In the latter case. the elasticity of his demand is
small."[22] Mathematically, the Marshallian PED was based on a point-price definition, using
differential calculus to calculate elasticities.[23]
Determinants[edit]
The overriding fa
Ds, in combination with price elasticity of supply (PES), can be used to assess where the
incidence (or "burden") of a per-unit tax is falling or to predict where it will fall if the tax is
imposed. For example, when demand is perfectly inelastic, by defi
Brand loyalty: an attachment to a certain brandeither out of tradition or because
of proprietary barrierscan override sensitivity to price changes, resulting in more
inelastic demand.[29][31]
Who pays: where the purchaser does not directly pay for the go
and which as the ending value. For example, if quantity demanded increases from 10
units to 15 units, the percentage change is 50%, i.e., (15 10) 10 (converted to a
percentage). But if quantity demanded decreases from 15 units to 10 units, the percentage