Price Elasticity of demand

What is price elasicity demand

It is the percentage change in quantity demand due to a percentage change in price. It is how responsive consumer demand is to changes in price

PeD formula

%Change in QD/%Change in P

When is PeD elastic

When PeD>1

When is PeD inelastic

When PeD<1

When is PeD neither elastic or inelastic

PeD=1

Why do we ignore the signs on the PeD

We ignore the signs because elastic means a greater than proportion of response

What is PeD shown on the graph

PeD= -infinity

What is the PeD shown by this graph

PeD=-1

What is the PeD shown by this graph

PeD=0

What is the PeD shown by this graph

PeD< -1

What is the PeD shown by this graph

PeD> -1

What are the factors affecting PeD

Substitutes

Proportion of income

Luxury vs necessity

Addictiveness

Time to respond

What is substitutes

The number of close substitutes available for a product e.g.

What is proportion of income

How much of the consumers income is spent on the good

What is luxury vs necessity

Whether the good is considered a necessity or a luxury

What is addictiveness

Whether the product causes habitual consumption

What is time to respond

The length of time following a price change