# Price Elasticity of Demand - Explained

What is Price Elasticity of Demand?

# What is Price Elasticity of Demand?

The ratio of change in the quantity of product that is demanded or the product purchased to the change in price is called as Price Elasticity of Demand. Its formula in terms of economics is as follows PED = (dQ/Q) / (dP/P) Economists use Price Elasticity to interpret how the real economy works. They get to know about how the supply or demand changes. For example, the price of some goods does not change by changing the supply or demand of those goods. So they are termed as inelastic. Let us take an example to understand inelastic goods. People want to travel or move around the world to accomplish their tasks. For this purpose, they have to buy gasoline. If the price of oil is increased, then the people will buy the amount of gas in the same quantity. Whereas if we talk about inelastic goods, then we see very noticeable changes in the price of such goods because of the demand or supply of those goods changes. Now lets consider the formula and examine how the demand side of the equation is affected by varying the price elasticity of demand. You can see the difference in the price elasticity of supply as well.

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# What is the Price Elasticity of Supply?

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.