Price elasticity of demand measures the responsiveness of a quality demanded to a change in price. It is calculated as the percentage change in quantity demanded derived by the percentage change in price. The whole concept of price elasticity of demand helps businesses and governments to decide how to price goods and services. It is a given fact that as the price of a good or service increases, the demand falls as a consequence. Businesses and governments want to know how much demand will fall when the price goes up. A great example of explaining why and how businesses use price elasticity of demand is; A shop wants to know if they pass on a price increase to their customers, how much will demand for that product fall- meaning would it become elastic, inelastic or unit elastic demand. Elastic demand is a strong response to a change in price In this diagram we can see at P1 , Q1 is demanded. A small price rise made p1 move up to P2. The result is a greater then proportional fall in the quantity demanded. Therefore demand is said to be relatively elastic. In elastic demand is a we......

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