Price Elasticity Of Demand

Price Elasticity of Demand (PED) is an economic measure that shows how much the quantity demanded of a product changes when its price changes. It helps economists understand how sensitive consumers are to price fluctuations. In simple terms, PED tells us how strongly people react to a change in price of a good or service. Meaning PED measures the responsiveness of quantity demanded when the price of a product increases or decreases. It helps determine whether consumers will continue buying a product even if prices rise, or whether demand will fall sharply.

Formula PED = % Change in Quantity Demanded % Change in Price PED= % Change in Price % Change in Quantity Demanded ​

Key Points:

1. Measures Sensitivity PED shows whether demand changes a lot, a little, or not at all when prices change.

2. Economic Indicator It helps businesses and policymakers understand consumer behavior and make informed decisions on pricing and taxation.

3. Relationship Between Price and Demand If a small change in price leads to a large change in demand → demand is elastic If a change in price leads to a small change in demand → demand is inelastic

4. Types of Price Elasticity of Demand Perfectly

• Elastic Demand – Infinite response; even a tiny price change causes huge demand shift.
• Elastic Demand (PED > 1) – Demand changes more than price.
• Unitary Elastic (PED = 1) – Demand changes proportionally to price.
• Inelastic Demand (PED < 1>
• Perfectly Inelastic Demand (PED = 0) – No response;
• demand remains constant despite price changes.