Price Elasticity of Demand
Chapter 4: Elasticity of Demand — Definition and Key Points
Definition of Price Elasticity of Demand
Numerical example: If price elasticity of demand is 2 (ignoring the sign), it means that:
- One percent fall in price → 2 percent rise in demand
- One percent rise in price → 2 percent fall in demand
Samosa Stall Test: A samosa seller drops the price from ₹15 to ₹12. If customers start buying 60% more samosas instead of just 20% more, that samosa has elastic demand. But if customers barely notice the ₹3 drop and buy only slightly more, demand is inelastic. The elasticity tells the samosa stall owner whether a price cut actually pays off.
Noteworthy Points About Price Elasticity of Demand
Click each point to reveal the full explanation. Points reveal in order so you absorb one idea at a time.