The elasticity of demand (Ed), also referred to as the price elasticity of demand, measures how responsive demand is to changes in a price of a given good. More precisely, it is the percent change in quantity demanded relative to a one percent change in price, holding all else constant (ceteris paribus). Demand of goods can be classified as either perfectly elastic, elastic, unitary elastic, inelastic, or perfectly inelastic based on the elasticity of demand. This table shows the values of elasticity of demand that correspond to the different categories.
What is the formula for calculating the coefficient of price elasticity of demand?
The formula for calculating the co-efficient of elasticity of demand is:
Percentage change in quantity demanded divided by the percentage change in price
Since changes in price and quantity usually move in opposite directions, usually we do not bother to put in the minus sign. We are more concerned with the co-efficient of elasticity of demand rather than the sign!