Elasticity of Demand

Posted in Operations and Supply Chain Terms, Total Reads: 2645

Definition: Elasticity of Demand

Elasticity of demand indicates the degree to which the demand for a product varies with its price in the market. It is calculated as the percentage change in the quantity demand for a unit percentage change in the price.


The formula can be given as follows,

 Elasticity of Demand=(% change in quantity demand)/(%change in price)

Generally, the demand increases with a drop in prices and the demand decreases with a rise in prices. Hence, the value of elasticity of demand gives a negative value.

Products are considered to be highly elastic if the demand changes by a large amount for a small change in price. Products are considered to be highly inelastic if the demand does not change for a large change in the price.



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