Price Elasticity of Demand. Definition Price elasticity of demand is an important concept in economics. It shows how demand for a product changes when.

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Presentation transcript:

Price Elasticity of Demand

Definition Price elasticity of demand is an important concept in economics. It shows how demand for a product changes when there is a change in its price. Elasticity of demand = proportional change in demand proportional change in price where, p: price, q: quantity or demand

Example Suppose that the price and demand for a product are related by the equation: p = 200 – q 2 - What is the price EoD? - What is the value of this when q=10?

Solution To calculate the EoD we need to know dq/dp, we can differentiate p with respect to q to get: p = 200 – q2, so dp/dq = -2q. This gives dp/dq and we want dq/dp:,

Solution When q=10, then EoD = A negative EoD is normal, it means that any increase in price reduces demand. Every unit increase in price decreases demand by 0.5 units.

Integration

Rules

Examples