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Price Elasticity of Demand Coefficient

Definition

The price elasticity of demand coefficient measures the responsiveness of quantity demanded to a change in price. It indicates how sensitive consumers are to changes in price.

Analogy

Think of the price elasticity of demand coefficient as a rubber band. When you stretch the rubber band, it becomes more elastic and stretches easily. Similarly, when the price elasticity of demand coefficient is high, it means that quantity demanded is highly responsive to changes in price.

Related terms

%ΔQd (percent change in quantity demanded): This term refers to the percentage change in quantity demanded resulting from a change in price. It helps determine the magnitude of consumer response to a price change.

%ΔP (percent change in price): This term refers to the percentage change in price that leads to a corresponding change in quantity demanded. It is used together with %ΔQd to calculate the price elasticity of demand coefficient.

Inelastic Demand: Inelastic demand occurs when the percentage change in quantity demanded is less than the percentage change in price. Consumers are not very responsive to changes in price, and their demand remains relatively constant.