What is the Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures the responsiveness of the quantity consumers demand in relation to price changes. In simple terms, when the price increases, demand for the product decreases. The PED tells us to what extent the demand decreases in response to this price increase. The PED is always negative, because an increase in price leads to a decrease in demand because the good or service is more expensive and that deters consumers from purchasing. Vice-versa, a decrease in price leads to an increase in demand becase the good or service is cheaper and that incentivies consumers to purchase mire. The equation of the PED is (PED= %changeQd / %changeP). In other words, the percentage change in demand divided by the percentage change in price. Given that one of these figures is always negtative due to their invesre relationship, the PED is always negative.

Answered by Emanuel V. Economics tutor

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