| − | '''''Price''''' elasticity of demand is the change in the quantity demanded by the public for a particular good due to a change in its '''''price'''''. Its symbol is "Ped", for "Price elasticity of demand." This term is used to answer this question: if the price of gasoline increases, how does the demand for gasoline change? It decreases due to the Law of Demand, but the '''''price elasticity'''' tells us '''''how much''''' it decreases due to a price increase. Specifically, price elasticity is the percentage change in quantity demanded, divided by the percentage change in the price of the good. If the percent change in quantity demanded is more than the percent change in price, then the good is considered "elastic". If the percent change in quantity demanded is less than the percent change in price, then the good is considered "inelastic". The Law of Demand means that price elasticity is always negative, but for convenience everyone uses the absolute value (positive value) without the minus sign. | + | '''''Price''''' elasticity of demand is the change in the quantity demanded by the public for a particular good due to a change in its '''''price'''''. Its symbol is "Ped", for "Price elasticity of demand." This term is used to answer this question: if the price of gasoline increases, how does the demand for gasoline change? It decreases due to the Law of Demand, but the '''''price elasticity''''' tells us '''''how much''''' it decreases due to a price increase. Specifically, price elasticity is the percentage change in quantity demanded, divided by the percentage change in the price of the good. If the percent change in quantity demanded is more than the percent change in price, then the good is considered "elastic". If the percent change in quantity demanded is less than the percent change in price, then the good is considered "inelastic". The Law of Demand means that price elasticity is always negative, but for convenience everyone uses the absolute value (positive value) without the minus sign. |
| − | overall revenue goes up or down due to a price change. Revenue is price times quantity, and when price goes up then quantity goes down, and we need to know the price elasticity to know what happens to the overall price times quantity. | + | overall revenue goes up or down due to a price change. Revenue is price times quantity, and when price goes up then quantity goes down, and we need to know the price elasticity to know what happens to the overall '''P x Q''' (price times quantity). |
| | Mathematically, price elasticity is as follows: | | Mathematically, price elasticity is as follows: |