Please can you help me to understand the concept of price elasticity of demand (PED)?

What is the relationship between price and quantity demanded for a certain good X? PED can help us solve this question. The price elasticity of demand is calculated as the "percentage change in quantity demanded divided by the percentage change in price".
Since the relationship between price and quantity is most always negative (recall the Law of Demand - i.e. quantity purchased varies inversely with price. The higher the price, the lower the quantity demanded), PED will be negative. However, we do not bother to put in the minus sign. We are more concerned with the co-efficient of elasticity of demand rather than the sign.--> of course there are goods that violate the law of demand! (Veblen and Giffen goods).
We say that PED is (relatively) elastic when PED>1 or (relatively) inelastic when PED<1. When PED=1 we say it is unit elastic. But what does this mean? If PED is smaller than 1 a given change in price (e.g. 10%) have a relatively smaller effect on the quantity of the good demanded (i.e. less than 10%). Price elasticity of demand further divided into Perfectly Elastic Demand (∞) Perfectly Inelastic Demand (0).

Answered by Economics tutor

6200 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

How could I evaluate a government policy which uses subsidies for a certain industry?


Why does the demand curve face downwards?


What is Opportunity Cost?


Discuss the private and social costs associated with the production of cars


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences