UK Accounting Glossary
Demand elasticity, also known as price elasticity of demand, is a concept economists use to measure price sensitivity. In principle, demand elasticity is an economic term defined as the percentage change in quantity demanded, divided by the percentage change in price. Demand elasticity can be expressed graphically through a simplified linear demand curve. On this downward sloping curve, demand elasticity can be seen as incremental changes in the quantity demanded (x-axis) going in the opposite direction relative to the changes in the price (y-axis). Thus, demand elasticity remains a negative value. To simplify the mathematical presentation of demand elasticity, economists drop the negative sign and use only the coefficient. As a result, demand elasticity is expressed as (Ed). Depending upon the responsiveness to price changes, demand elasticity can be elastic or inelastic as described by the angle of the demand curve. The flatter the curve, the more price elastic, while a steeper curve would mean more price inelastic.
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This glossary post was last updated: 7th February 2020.