Price Elasticity Of Demand

Definition:
(Percentage Change in Quantity Demanded) / (Percentage Change in Price)

Percentage Change in Quantity Demanded =(Q_New-Q) / Q
Percentage Change in Price =(P_New – P) / P
Together: ΔQ/Q / ΔP/P
Or: ΔQ/Q * P/ ΔP
Yields: ΔQ/ ΔP * P/Q

Suppose demand is given as: Q_D = 10 – 2 P

How sensitive are people to changes in price? That depends on two things.
A) How sensitive people are in general. Slope of the demand curve. In this case -2.
B) How high the price already is. Where we are on the demand curve.