The elasticity of demand Essay Example | Topics and Well Written Essays - 1500 words

The elasticity of demand - Essay Example This research will begin with the statement that the sensitivity of demand of a product with respect to changes in its own price is identified as the own price elasticity of demand. To state this alternatively, own price elasticity of demand is defined as the percentage change in demand per percentage change in the price of the product, other things remaining the same. Therefore, the own price elasticity of demand is expressed as the ratio of percentage change in demand and the percentage change in the price of the good in question. So, own price elasticity of demand for the good X with a per unit price PX shall be given by the expression: EPx = (percentage change in quantity demanded of X)/ (percentage change in PX). This can be calculated as either at a movement from a point on the demand curve to another, which is known as arc elasticity or as the limiting value of arc elasticity known as point elasticity of demand. However for changes assumed to be infinitesimally small, so that the movement is not perceptible and it is as if the consumer stays on the same point on the demand curve almost, we use the limiting value of arc elasticity of demand, known as point elasticity of demand. Since for all normal goods quantity demanded varies inversely with price, own price elasticity is always negative, though the extent to which demand varies inversely is not the same for all goods.