Dr. Marshall has defined price elasticity of
demand as below:
"Price elasticity of demand is a ratio of
proportionate changes in the quantity demanded of a commodity to a given
proportionate change in its price."
Thus, price elasticity is responsiveness of change
in demand due to a change in price only. Other factors such as income, population,
taste, habits, fashions, prices of substitute and complementary goods are
assumed to be constant. Therefore, price elasticity of demand is written as :
Ed = Percentage change in quantity demanded ÷ Percentage change in price
Ed = (∆Q/Q) ÷ (∆P/P)
Where: Q = Original demand
P = Original Price.
∆ Q = Change in quantity demanded. It is measured
as the difference between new quantity demanded (Q1) and old quantity demanded
(Q)
Thus ∆ Q = Q1 – Q
∆ P = Change in price. It is measured as the
difference between new price (P1) and old price (P)
Thus ∆ P = P1 – P
Price elasticity of demand may have five values
infinite, zero, unit, greater than one and less than one.
