Price elasticity of Demand

PED measure the responsiveness of demand after a change in the good’s own price

% change in quantity demanded over % change in price

• PED = 0: Demand is perfectly inelastic, meaning quantity demanded does not change regardless of price changes. Consumers will buy the same quantity no matter how much the price changes.

• PED between 0 and -1: Demand is inelastic. A percentage change in price results in a smaller percentage change in quantity demanded. Consumers are relatively insensitive to price changes, and total revenue rises as price increases.

• PED = -1: Demand is unit elastic. A percentage change in price results in an equal percentage change in quantity demanded. Total revenue remains constant as price changes.

• PED > -1: Demand is elastic. A percentage change in price leads to a larger percentage change in quantity demanded. Consumers are sensitive to price changes, and total revenue