What is price elasticity of demand?

Price elasticity of demand (PED) measures the responsiveness of demand in relation to a change in price. The formula for PED is %change in quantity demand / %change in price.

If a good has an elastic PED it will have a value greater than 1, which means that a change in price leads to a larger percentage change in demand. Examples of goods which usually have an elastic PED include luxury goods such as sports cars, goods with a high price as well as goods with many substitutes.

If a good has an inelastic PED it will have a value less than 1, which means that a change in price leads to a lower percentage change in demand. Examples of goods which have an inelastic PED include neccessities, goods which are bought frequently, and those with a low price.

Answered by Alexandra L. Economics tutor

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