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Measuring the Price Elasticity of Demand
The price elasticity of demand (PED) is calculated by diving the percentage change in quantity demanded by the percentage change in price.
Learning Objective

Calculate the ownprice elasticity of demand
Key Points

PED captures the change in quantity demanded in response to a change in the good's own price (as opposed to the price of some other good).

The formula for price elasticity yields a value that is negative, pure, and ranges from zero to negative infinity.

The result provided by the formula will be accurate only if the changes in price and quantity demanded are small.
Terms

Ownprice elasticity of demand
Responsiveness of quantity demanded to a change in the good's own price

Crossprice elasticity of demand
Measures the responsiveness of the demand for a good to a change in the price of another good.
Full Text
The price elasticity of demand (PED) captures how pricesensitive consumers are for a given product or service by measuring the responsiveness of quantity demanded to changes in the good's own price. This is in contrast to measuring the responsiveness of the good's demand to a change in price for some other good (a complement or substitute), which is called the crossprice elasticity of demand. The ownprice elasticity of demand is often simply called the price elasticity.
The following formula is used to calculate the ownprice elasticity of demand:
The formula above usually yields a negative value because of the inverse relationship between price and quantity demanded . However, economists often disregard the negative sign and report the elasticity as an absolute value. For example, if the price of a good increases by 5 percent and the quantity demanded decreases by 5 percent, then the elasticity at the initial price and quantity is 5%/5% = 1. This number is likely to be reported simply as 1.
There are a few other important points to note about the coefficient value provided by this formula. First, the elasticity coefficient is a pure number, meaning that it does not have units of measurement associated with it. Second, the coefficient value can range from zero to negative infinity. Finally, the result provided by the formula will be accurate only when the changes in price and quantity are small. The result will be less accurate when the changes are large.
Since PED is based off of percent changes, the starting nominal quantity and price matter. At low prices and high quantities, the PED is therefore more inelastic. For example, a drop in the price of $1 from a starting price of $100 is a 1% drop, but if the starting price is $10, it is a 10% drop. Similarly, at high prices and low quantities, PED is more elastic .
Key Term Reference
 Complement
 Appears in this related concepts: CrossPrice Elasticity of Demand, Mapping Preferences with Indifference Curves, and Impact of Income on Consumer Choices
 demand
 Appears in this related concepts: Informative, Persuasive and Reminder Advertising, A Brief Description, and Definition of Price Elasticity of Supply
 elastic
 Appears in this related concepts: Internal vs. External Forces, Fracture, and Tax Incidence, Efficiency, and Fairness
 elasticity
 Appears in this related concepts: Hooke's Law, Speed of Sound, and Tax Incidence and Elasticity
 inelastic
 Appears in this related concepts: Linear Momentum, Defining Price Elasticity of Demand, and Applications of Elasticities
 nominal
 Appears in this related concepts: Describing Qualitative Data, Calculating Real GDP, and Explaining Fluctuations in Output
 price
 Appears in this related concepts: Products, Placement, Promotion & Price, Breakeven Analysis, and Defining a Market System
Sources
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Cite This Source
Source: Boundless. “Measuring the Price Elasticity of Demand.” Boundless Economics. Boundless, 14 Nov. 2014. Retrieved 20 May. 2015 from https://www.boundless.com/economics/textbooks/boundlesseconomicstextbook/elasticityanditsimplications6/priceelasticityofdemand54/measuringthepriceelasticityofdemand20912300/