What is price elasticity?

• a measure of the responsiveness of the quantity of a good demanded to changes in its price.

Price elastic = large responsiveness

Price inelastic = small responsiveness

Calculating PED:

PED = % change in demand/ % change in price

Values of PED:

0 < PED < 1: inelastic demand

inf. > PED> 1: elastic demand

PED = 1: unit elastic demand

PED = 0: perfectly inelastic demand

PED = infinity: perfectly elastic demand

Definitions of values of PED:

PED = 1: % change in quantity demanded = % change in price

PED = 0: quantity demanded is completely unresponsive to price.

PED = inf.: quantity demanded is infinitely responsive to price.

What does an inelastic demand graph look like compared to an elastic one?

• inelastic is more steep, elastic is less steep.