Calculating Price Elasticity of Demand

Readers Question: When the price of CD increased from $20 to $22, the quantity of CDs demanded decreased from 100 to 87. What is the price elasticity of demand for CDs? Is it demand elastic or inelastic?

Price Elasticity of demand = % change in Q.D. / % change in Price

Calculating a %

• The price increases from $20 to $22. Therefore % change = 2 / 20 = 0.1
  0.1 = 10% (0.1 *100)
• Quantity fell by 13 / 100 = – 0.13 (13%)
• Therefore PED = 13 / – 10
• Therefore PED – -1.3
• Therefore Demand is elastic. Elastic demand occurs when % change in Quantity is greater than % change in price; when PED >1

See also: Calculating a Percentage

Price Elasticity of Demand