The Greek letter Δ (upper case delta) is used to symbolise 'change in', therefore the formula is commonly written as:
Définition
Elasticity of demand
Elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to changes in one of the factors that determines it.
Price Elasticity of Demande (PED)
Price elasticity of demand (PED) is a measure of how much the quantity demanded of a good changes when there is a change in its own price.
Formula of Price Elasticity of Demand
In other words, this means that the price elasticity of demand is the percentage change in the quantity demanded of a good, divided by the percentage change in the price of that same good.
According to the law of demand, when the price of a good increases, quantity demanded declines, ceteris paribus. The extent to which the quantity demanded changes depends on how 'elastic' its demand is with respect to its price.
Because of the negative relationship between the price of a good and quantity demanded, the signs of the percentage price change and the percentage quantity will be different from one another. When the price of a good increases, ceteris paribus, the quantity demanded of the good will decrease. This means that mathematically PED is always negative (PED < 0).
However, by convention, economists always consider PED as a positive number, as the sign does not have any economic meaning.
A retenir :
When calculating the value of PED, the negative sign is irrelevant from an economics point of view, because it will always be a negative number. Instead, it is the absolute value resulting from the calculation that is taken into consideration.
However, when we cover income elasticity of demand (YED) later in this subtopic, the sign of the value does matter. Therefore, when you are working with PED, you may wish to keep the negative sign in your responses. Just be aware that you may see it written as its absolute value in the exam, other textbooks or internet resources.
Exam Tip: Pay close attention to how you input quantity and price into the equation. In many examples, the price change is often mentioned first and the impact on quantity second. Students frequently make the mistake of putting the price change in the numerator instead of the denominator when price is mentioned first in an example.