Price Elasticity of Demand (PED) =
(% change in quantity demanded / % change in price)
If absolute value is GREATER THAN 1.0, demand is ELASTIC
If absolute value is LESS THAN 1.0, demand is INELASTIC
If absolute = 1, demand is UNIT ELASTIC
Two main determinants of price elasticity:
1. availablity of substitutes (demand more elastic if substitutes available)
2. share of budget spent on product (demand less elastic for pricier items)
Elasticity of demand and supply is greater in the long run.
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