Explain how to calculate Price Elasticity of Demand

   Elasticity is just a technical term for "Sensitivity" so Price Elasticity of Demand (PED) simply measures how sensetive Demand is to a change in price. As demand changes can be measured in anything from say single chairs to millions of strawberries it is always important that we use percentage changes in Demand not just the nominal change.     So to work out PED we need to calculate the Percentage Change in demand divided by the Percentage Change in Price. A little phrase to use to remember which way to put the two values is remember that Ducks swim on a Pond so Demand goes on top of Price. We get percentages changes by taking the (New Value - Old Value)/ Old Value. The answer we get will be a number which will always be negative (this is because demand and price will always move in oppossite directions) and from that we can tell if the good is Elastic, Inelastic or of Unitary Elasticity.   

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Answered by Mark W. Economics tutor

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