Explain what is meant by PED (Price elasticity of demand)

Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes. It seems difficult to grasp but in fact it is quite easy. We use the word "coefficient" to describe the values for price elasticity of demand If Ped = 0 demand is perfectly inelastic - demand does not change at all when the price changes – the demand curve will be vertical. If Ped is between 0 and 1 (i.e. the % change in demand from A to B is smaller than the percentage change in price), then demand is inelastic. If Ped = 1 (i.e. the % change in demand is exactly the same as the % change in price), then demand is unit elastic. A 15% rise in price would lead to a 15% contraction in demand leaving total spending the same at each price level. If Ped > 1, then demand responds more than proportionately to a change in price i.e. demand is elastic. For example if a 10% increase in the price of a good leads to a 30% drop in demand. The price elasticity of demand for this price change is –3

Answered by Joao R. Economics tutor

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