Describe with a real world example, price elasticity of demand

Price elasticity of demand (PED) is a measure used to show the responsiveness of the quantity demand of a good to a price change and is generally expressed in percentages. This is extremely important for firms when forecasting demand changes given pricing decisions or for governments intending to reduce consumption of demerit goods. Over the last 30 years, the British government has attempted to reduce smoking rates, and thus have implemented VAT taxes on cigarettes. However given that cigarettes are very inelastic goods, meaning %change in QD of a 1% increase in price would be between 0 and -1, relatively the tax increases have not had a huge impact on decreasing consumption of the good. On the other hand, increasing prices of an elastic good, such as apples, would have a great impact on the quantity demanded of the good. 

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Answered by Dylan J. Economics tutor

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