- Created by: abbiestainesxx
- Created on: 31-03-17 10:44
Price elasticity of demand
Elasticity measures responsiveness to change. PED measures the extent to which a change in price leads to a change in quantity demanded.
Formula = % change in quantity demanded
% change in price
This tells us the degree of elasticity. We then refer to good or a service as being price elastic or price inelastic.
Interpretation of numerical values of price elasticity of demand
- Price elastic = a price change causes a proportionately bigger change in quantity demanded. This means that % change in Q is greater than the % change in price. Numerical value = Beyond -1.
- Unit price elasticity = A price change causes the sameproportional change in quantity demanded. This means that % change in Q is the same as the % change in price. Numerical value = -1
- Price inelastic - A price change causes a proportinately smaller change in quantity demanded. This means the % change in Q is smaller than the % change in price. Numerical value = Between 0 and -1.
REMEMBER PED IS ALWAYS NEGATIVE!