According to this method, price elasticity of demand is measured as the ratio of percentage change in quantity demanded of the commodity to percentage change in its price. That is,
\({ E }_{ D }=\frac { ./.\quad Change\quad in\quad Quantity\quad Demanded }{ ./.\quad Change\quad in\quad the\quad Price } \)
\( =frac \ { \triangle Q }{ Q } \times \frac { P }{ \triangle P } =\frac { \triangle Q }{ \triangle P } \times \frac { P }{ Q } \) ..............(I)
where; P = Original price
Q = Original demand
\(\triangle \) Q = Change in demand
\(\triangle \) P = Change in price
Example: Suppose the quantity of sugar demanded by a household is 4 kg at price Rs.12 per kg. When the price falls to Rs.I I per kg, quantity demanded increases to 6 kg.
Original Pprice of the Good; P = Rs.12
Original Quantity Demanded; Q = 4kg
New Price of the Good; P₁ = Rs.11
Change in Price; \(\triangle \) P = P-P = 11-12 = (-)1
New Quantity Demanded; \(\triangle \)Q = 6 kg
Change n Quantity Supplied;\(\triangle \) Q = Q₁-Q = 6-4 = 2
Substituting appropriate values in (I); we get
Price Elasticity of Demanded; E_D = \(\frac { 2 }{ (-)1 } \times \frac { 12 }{ 4 } =(-)6\)
The value of elasticity of demand equal to 6 in our example implies that the percentage change in quantity demanded of the commodity is 6 times the percentage change in its price.