Introduction to price elasticity of demand | APⓇ Microeconomics | Khan Academy

TL;DR

Price elasticity of demand measures the sensitivity of quantity to changes in price, with elastic situations having a larger percent change in quantity compared to the percent change in price, and inelastic situations having a smaller percent change in quantity.

Transcript

• [Instructor] We are now going to discuss price elasticity of demand, which sounds like a very fancy concept, but really, it's a way for economists to sense how sensitive is quantity to change in prices. And in this video, we're gonna denote it as a capital E, so E, price elasticity of demand. And the easy way to think about it is it is your perce... Read More

Key Insights

• 💱 Price elasticity of demand measures the sensitivity of quantity to changes in price.
• 💱 Inelastic demand means that quantity changes less for a given price change, while elastic demand means that quantity changes more for a given price change.
• ❓ The absolute value of the price elasticity of demand determines the elasticity or inelasticity of a situation.
• 🤪 The technique used for calculating price elasticity of demand affects the result when going from different points on the demand curve.
• ❓ The midpoint technique is a more consistent method for calculating price elasticity of demand.

Questions & Answers

Q: What does price elasticity of demand measure?

Price elasticity of demand measures the sensitivity of quantity to changes in price, indicating how much quantity changes for a given price change.

Q: How is price elasticity of demand calculated?

Price elasticity of demand is calculated by dividing the percent change in quantity by the percent change in price.

Q: What does it mean when price elasticity of demand is greater than one?

When the absolute value of the price elasticity of demand is greater than one, it indicates an elastic situation, where quantity changes more than the corresponding price change.

Q: What does it mean when price elasticity of demand is less than one?

When the absolute value of the price elasticity of demand is less than one, it indicates an inelastic situation, where quantity changes less than the corresponding price change.

Summary & Key Takeaways

• Price elasticity of demand measures how sensitive quantity is to changes in price.

• An elastic demand means that quantity changes a lot for a given price change, while an inelastic demand means that quantity changes less for a given price change.

• The absolute value of the price elasticity of demand determines whether a situation is elastic or inelastic, with values less than one being inelastic and values greater than one being elastic.