In a market demand consumers is an important factor that contributes to the changes of the elasticity of demand. Demand means the quantity of goods that the consumers are capable and willing to purchase. Generally consumers prefers to buy goods when its price is lower, with a higher income and when the price of the substitute goods relatively higher and lastly they prefer to by goods with a lower price of complementary goods. This indicates the price is the main concern of the buyers which response to the quantity demanded. Therefore, relating to this concept there is a law of demand that refers to when the price of the goods decreases, then the quantity demanded for the goods will increase or vise versa. ( N. Gregory Mankiw, 2010).
The definition of price elasticity of demand is the responsiveness of proportionate changes in quantity demanded to proportionate changes in price. In other words, the percentage change in quantity demanded divided by the percentage change in price. Price elasticity can be classified into 3 types which is elasticity, inelastic, unit elastic. Elasticity is explained as when the percentage changes in the quantity demanded is more than the percentage change in price where the PED is more than 1. (Lipsey, Chrystal, 2010) For example 10% fall of price, increases the quantity demanded to 20%, price elasticity would be = 2. Inelastic means if a proportionate changes in price leads to a smaller proportionate change in in quantity demanded, demand is said to be inelastic where the absolute value of elasticity will exceed zero, where the PED is less than 1. (Lipsey, Chrystal, 2010) For example 20% increase in price, will lead to a fall of 5% in quantity demanded, price elasticity would be = 0.25 (www.tutor2u.net) Lastly, unit elastic means if a proportionate change in price leads to an equal change in quantity demanded, demand is said to be unit elasticity, where the PED = 1.
