Ralph Thomas
ECON212-1402B-04 Principles of Microeconomics
Professor: Lance Brofman
Phase: 2 Individual Projects
June 2, 2014

What is the price elasticity of demand? What determines it? What is elastic and inelastic demand?
The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change. The formula for the Price Elasticity of Demand (PEoD), (Moffat, M., para1 economic, about.com) is:
PEoD = (% Change in Quantity Demanded)/ (% Change in Price) * If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes) * If PEoD = 1 then Demand is Unit Elastic * If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)
The price of a laptop increases by 20% and there is a 40% drop in the quantity demanded.
=40/20
=2
The price of a pack of cigarettes increases by 10% and there is a 5% drop in the quantity demanded
=10/5
=2
Why is elasticity an important concept for a business?
If you use elasticity of demand information to predict the potential impact of a price fluctuation on the total sales revenue, the price elasticity of demand is a way of looking at the sensitivity of price related to product demand. Demand elasticity is an economic concept also known as price elasticity. Price elesticy can be a confusing at times but its main reason is to help the company gain the maximum profit possible. If you utilize the versatility of interest information to foresee the potential effect of a value changes on your aggregate deals income. As a company, you need to understand price and demand elasticity when building pricing strategies for your products or services. You have to consider what products are at a good balanced price. You have to examine if the customer considers the price to be reasonable, and at what price point