What Is Price Elasticity?

Price elasticity determines the responsiveness for the demand of a product or a commodity in the market, as a result of the changes brought about in the prices. It shows the behavior of the consumers and their decisions to buy a certain product after the increase or decrease in the price. The formula for the calculation of Price elasticity is as follows:

Price elasticity = (percentage change in quantity) / (percentage change in price).
         
For example, if the prices of the products are increased by 10%, then may be the demand will decrease by 20%. In this case the price elasticity will be -2. Price elasticity helps the companies in adjusting their prices and to control the demand and supply in the market. Price elasticity can be negative as well as positive. The greater will be the Price elasticity the more will be the consumers sensitive with the price changes for a specific commodity.