Interpreting PED & YED

What does price elasticity of demand (PED) measure?

Responsiveness of quantity demanded to a change in price.

What is the formula for calculating Price Elasticity of Demand (PED)?

PED = (% change in quantity demanded) ÷ (% change in price)

What does it mean if PED is less than 1?

Price is inelastic.

• meaning a change in price leads to a smaller change in quantity demanded.

What does it mean if PED is greater than 1?

Price is elastic

• meaning a change in price leads to a larger change in quantity demanded.

How can businesses utilize price elasticity of demand?

Businesses can predict how changes in price will affect the quantity demanded of their goods.

What is income elasticity of demand (YED)?

Measures the responsiveness of quantity demanded to a change in consumer income.

What is the formula for calculating Income Elasticity of Demand (YED)?

YED = (% change in quantity demanded) ÷ (% change in income)

What does a positive YED coefficient indicate?

An increase in income will increase demand.

What does it imply if YED is less than 1?

It is described as inelastic

• meaning a change in income leads to a smaller change in quantity demanded.

Why might the demand for petrol be considered inelastic?

Because consumers still require fuel regardless of price changes, making their demand less sensitive to price.

What characteristics define a good with an elastic YED?

A good with a YED greater than 1, where demand significantly changes with income changes, such as premium cars.