Price Elasticity of Demand

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  • Elasticity - PED
    • % change in QD divided by % change in price
      • *Golden Rule*-DOT demand on top
    • 0=perfectly inelastic        0--1=inelastic 1=unit elastic %change in price (substitutes available)
    • Inelastic - %change in price> %change in QD (necessity, no substitutes)
    • Unitary elastic - change in price = directly proportional change in D by same amount
    • Perfectly elastic = price change results in an infinite change in D
    • Perfectly Inelastic = price changes have no effect on demand
    • What determines PED?
      • Necessity or luxury
      • Substitutes Available
      • Peak and off-peak
      • Cost and ease of switching between products
      • Length of time consumers are given to adjust to price changes
      • % of Y spent on good
      • Product vs brand / branding
      • Habitual consumption


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