Can you explain the concept of the Price Elasticity of Demand?

The price elasticity of demand, also known as PED for short, is a measure of how responsive consumers of a product are to a change in price. In a competitive business market, its important for producer to be aware of the PED of their product, so that they can make decisions that will maximise their profits/success and reach their goals.
The price elasticity of demand can be calculating by taking the percentage change in the demand for a product, divided by the percentage change in the price of a product.
A PED that is greater than 1 is known as elastic. An elastic PED implies that consumers are very responsive to a change in price (meaning price has a larger influence on their decision of whether to buy the product). An example of an elastic good is a non-necessity such as a chocolate bar. Meanwhile a PED that is less than one is known as inelastic, meaning that consumers are less responsive to a change in price. An example of a product with an inelastic PED is cigarettes, as the addictive nature of the product means that most consumers will continue to purchase the good regardless of price increases.

Answered by Joshua Michael K. Economics tutor

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