Measurement of price elasticity of demand
Measurement of price elasticity of demand The elasticity of demand devices a technique to assign a numerical value to the responsiveness of a change in quantity demanded of a good to a given change in its price. On this basis, there are different methods to measure the price elasticity of demand which are explained below. Total expenditure method: In this method, the price elasticity is measured by comparing the total expenditure of the consumers before and after variations in price. We measure price elasticity by examining the change in total expenditure as a result of a change in the price and quantity demanded a commodity. 1. When total expenditure increases with the fall in price and decreases with a rise in price, then the PED is greater than one. 2. When the total expenditure remains the same, either due to the rise or fall in price, the PED is equal to one. 3. When total expenditure decreases with the fall in price and increases with the rise in price, the...