Point Elasticity of Demand calculates the elasticity at a certain point on the demand curve. It is primarily the ratio of a percentage change in a good’s quantity requested to a percentage change in its price determined at a certain point on the demand curve.

(OR)

Point elasticity is the price elasticity of demand at a given point on the demand curve rather than at a range of points on the demand curve.

Demand elasticity at the point is not a new sort of elasticity. It is one of two ways for calculating elasticity, the other being demand arc elasticity. Even though the point elasticity approach is easier and more common, all key measures of elasticity, such as (price) elasticity of supply, income elasticity, and cross elasticity of demand/supply, include point elasticity and arc elasticity variants.

To obtain point PED, we must rewrite the fundamental formula to add an equation for the %, which is the change in a value divided by the original value, as follows:

                                                         (ΔQd/Qd)

Point Elasticity of demand=    __________

                                                          (ΔP/P)

                                               = ΔQd     P

                                                  _____ .___

                                                  Qd        ΔP

(OR)                                             ΔQd         P

                                                =  _____ .  ___

                                                       ΔP         Qd

Point elasticity of demand can also be calculated for any point on the demand curve using a bit of calculus as follows:

Ed = (dQ/dP)/(P/Q)

Where dQ/dP is the demand curve/first function’s derivative. It calculates the change in quantity requested in response to a very minor change in price at price P. Because dQ/dP can be determined at a specific position on a curve, the above equation provides a more accurate estimate of elasticity.

When the price of an item rises, the amount required reduces for virtually all of them, although it falls more for some than others. Price elasticity expresses the percentage change in quantity required caused by a one percent increase in price while maintaining all other variables constant. If the elasticity is 2, a 1% increase in price results in a 2% decrease in amount demanded. Other elasticities assess how the amount needed changes in response to other variables (e.g. the income elasticity of demand for consumer income changes).

Except in rare situations, price elasticities are negative. If a good is described to have an elasticity of 2, it nearly invariably indicates that the formal definition of elasticity is 2. The expression “more elastic” suggests that the magnitude of a good’s elasticity is larger, ignoring the sign. Veblen and Giffen products are two types of goods with positive elasticity, which are uncommon exceptions to the rule of demand. When the elasticity of demand for an item is less than one in absolute value, changes in price have a very minimal influence on the amount desired. When the elasticity of demand for a good exceeds one, the demand is said to be elastic. A good with an elasticity of 2 has elastic demand because quantity decreases twice as much as price increases; a good with an elasticity of -0.5 has inelastic demand because quantity decreases half as much as price increases.

With an elasticity of 0 and no price rises, consumption would remain constant. When the price is chosen so that the elasticity is exactly one, the revenue is maximised. The elasticity of a good can be used to predict the incidence (or “burden”) of a tax on that product. Price elasticity is determined using a variety of research approaches, including test markets, historical sales data analysis, and conjoint analysis.