unit 2 price elasticity of demand

  • 0 votes

Hi,

how do I work out the PED

Please can you show by using an example 

many thanks:) 

Posted Tue 23rd April, 2013 @ 19:00 by amelia

2 Answers

  • 1 vote

PED basically measures if price changed by how much would demand change as a result.

So, if the prie of a chocolate bar rose from 60p to 70p and as a result, demand fell from 100 bars to 90 bars, it would be calculated in the following way:

The change from 60 to 70 is 10

10 would be divided by the original figure (60) to get 0.16

The same occurs for price

The difference is -10 divided by 100 which makes -0.1

0.16 divided by -0.1 makes -1.6

The price elasticity of demand is -1.6

Answered Sat 14th December, 2013 @ 19:47 by Chantallehelm
  • 0 votes

Just to add to @Chantallehelm's answer, -1.6 PED would indicate elasticity.

The closer the PED number is to 0, the more inelastic it is.

If the PED is 1, it would represent unitary elasticity.

If the PED is above 1, then it would indicate elasticity.

As they are a negative number, it would indicate that there is an inverse relationship. For example, when one thing goes up, the other factor decreases.

For this reason, we ignore the negative sign and we just take the PED value as 1.6 if we are to measure elasticity.

I hope this helps!

Answered Mon 8th February, 2016 @ 14:34 by SenpaiTheHentai