Sample Essay

The magnitude of change in demand with respect to change in corresponding price is referred to as elasticity of demand. If the change in demand of a commodity is higher than the change in price then the commodity is said to be price elastic. On the other hand if the change in demand of a commodity is lower than the change in corresponding price then the commodity is price inelastic. The calculations given below illustrate if the apples are elastic, inelastic or unitary elastic.

In order to find price elasticity of demand we need to calculate the percentage changes in demand and price.

Percentage change in demand = (New demand – old demand) / old demand

Percentage change in demand = (20 –30) / 30

Percentage change in demand = -33.3%

Percentage change in price = (New price – old price) / old price

Percentage change in price = (3.45 – 3.0) / 3.0

Percentage change in price = 15%

The price elasticity of demand – PEoD can be calculated by using the following equation.

PEoD = % change in demand / % change in price

PEoD = (-33.33% / 15%)

PEoD = -2.22

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