2.6 Price Elasticity of Demand (PED)

Define Price Elasticity of Demand.

responsiveness of Qd to a change in price

What is the formula for PED?

% change in Qd / % change in $

Is this relatively price elastic or inelastic? Why?

relatively inelastic, PED < 1

Is this relatively price elastic or inelastic? Why?

relatively price elastic, PED > 1

If PED is >1, then it is relatively price __

elastic

If PED is <1, then it is relatively price __

inelastic

Determinants of PED
# of s__, as more = likely elastic

substitutes

Determinants of PED
T__, as ↑P = consumer looks for alts; __ time finding = ↑PED = more elastic

time, longer

Determinants of PED
Proportion of __ spent, cheap products (newspaper) are likely __ as they don’t cost much & ↑P won’t be felt

income, inelastic

Name this elasticity, and the value of PED.

perfectly price inelastic, PED = 0

Give the value of the PED and why.

0, rise & fall in price causes no change in Qd

Name this elasticity, and the value of PED.

perfectly price elastic, PED = infinite

Give the value of the PED and why.

infinite, as its demanded at only 1 price

Name this elasticity, and the value of PED.

unitary elastic, PED = 1

Give the value of PED and why.

1, as change in price = change in Qd

If PED = 0, it is

perfectly price inelastic

If PED = infinity, it is

perfectly price elastic

If PED = 1, it is

unitary elastic