Price elasticity of demand (Ep)

The price elasticity of demand is the ratio of a percentage change in quantity demanded and the percentage in price, other factors remaining constant. It measures the responsiveness of sales of a good to changes in its price. It can be written as:

Ep = Percentage change in quantity demanded/ Percentage change in price= ΔQ/Q/  Δ P/P

where   Δ Q and   Δ P refer respectively to incremental change in quantity and change in price. Q and P depict original quantity and price. It should be noted that D refers to absolute change while   Δ Q/Q is a percentage change.

Suppose a 1% reduction in price is followed by a 1.3% increase in quantity demanded then the price elasticity is 1.3. An elasticity of -2 is greater than an elasticity of -1 even though algebraically, the opposite may be true. The elasticity is given a positive sign .despite inverse relation between price and quantity demanded to make analysis simple. 

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