Explain the concept of price elasticity
Price elasticity of demand (PED) is how demand of a good/service changes as the price of the good/service changes.As a formula: % change in quantity demanded / % change in pricePED < 1 means the quantity demanded changes less than the price change (it is inelastic)PED > 1 means the quantity demanded changes more than the price changes (elastic)PED = 1 is unit elastic. Demand changes the same amount as the price.Real life examples: goods that are important and a "necessity" are often inelastic (electricity, water, food, medicine). People still need them even if prices rise.On the other hand, "luxury" goods are often elastic. People are more willing to reduce consumption of these if prices rise.
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