1.2.3 Price elasticity of demand

What is PED

PED measures the responsiveness of quantity demanded to a change in price

PED equation

% change in quantity demanded/% change in price

How to do percentage change (raw numbers)

difference/ original x 100

What will numerical answer be for PED and why?

Negative because of law of demand (downward sloping)

What happens if number is greater than one

Demand is price elastic

Why would demand be price elastic?

When the percentage change in quantity demanded is greater than the percentage change in price.

What occurs when figure is less than one

Demand is price inelastic

What does price inelastic mean?

When the percentage change in quantity demanded is smaller than the percentage change in price

Extreme: What occurs when PED is 0

Perfectly price inelastic

What is the meaning of perfectly price inelastic

Regardless of the price change, quantity demanded won’t change at all

Extreme: what if PED is infinity

Demand is perfectly price elastic

What if PED is 1

Demand is unit price elastic

Acronym for influence of PED

SPLAT

What does S stand for

(Number of) Substitutes, the more substitutes there are the more price elastic demand is going to be

What does P stand for?

Percentage of income, the greater the percentage of income that a price changes takes, the more price elastic demand is going to be.

What does L stand for

Luxury/ neccessity. Luxuries have more price elastic demand and necessities is more price inelastic demand

What does A stand for?

Is good addictive/ habit forming. Demand is price inelastic, For habit forming demand is price inelastic

What does T stand for?

Time period, demand will be price inelastic

What kind of curve is this

Inelastic demand

What kind of curve is this (vertical line)

Perfectly inelastic demand

What kind of curve is this (horizontal line)

Perfectly elastic demand

What kind of curve is this

Unitary elastic