What is the Price Elasticity of Demand?

The price elasticity of demand (PED) measures the responsiveness of demand to a change in price. It is calculated by dividing the percentage change in quantity demand by the percentage change in price. Price and demand move in opposite directions, which is why the demand curve slopes downwards, so when we are interpreting the PED we look at the coefficient value and not the sign.If the PED is 0, demand is perfecting inelastic meaning that demand is not responsive to changes in price so the demand curve is vertical. If the PED is between 0 and 1, demand is inelastic, meaning a 50% increase in price results in a change in demand of less than 50% but greater than 0%. If PED = 1, it is unit elastic therefore a 50% increase in price results in a 50% decrease in demand. If PED>1, the demand is elastic therefore a 50% increase in price results in a more than 50% decrease in quantity demand.

Answered by Jamie B. Economics tutor

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